Be Careful with Credit Cards
Just ask yourself: is the credit card working for you or are you working for your credit card? Most people’s reply to that question will depend on how they use their “plastic friend” as credit cards are often known. As many people with burned fingers will tell you, they didn’t realize that things had become so bad until too late, because most credit card companies try so hard to make themselves sound like a charity. Well, take it from me, they aren’t.
And this is not a hate campaign against credit cards. They have their uses – in the USA if you want to rent a car, you have got to have a (major) credit card. But, consider this scenario:
You get an offer in the mail that sounds great, perhaps it’s a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit, so you go out and purchase the product right away. Often, this is how your repayment schedule will work out. Most credit cards charge a minimum percentage of the total balance (typically 2 percent) per month. Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only $10 will come off the $2,000!
Sounds scary? It doesn’t have to be. The moral of the illustration is to use the credit card very, very carefully.
Credit Cards Dos and Don’ts
There is a lot of truth in the saying that credit cards are not a substitute for not having money. Every time you use a credit card this should be the theme replaying in your head. And you would do good to remember the following too:
Dos.
1] Always plan for the purchases that you need and those that you just want. You need the essentials, but you only want everything else. The ability to make a distinction could assist you plan more sensibly.
2] If you are caught up in financial difficulties, it’s always a good idea to talk to the credit card supplier who might adjust your payments. If you just default, that only helps to build up an unfavourable credit history and you might find yourself being denied credit in the future.
3] Unless it is an emergency, staying within your credit limits will help you a lot. If you must spend over the limit, ensure you are within manageable levels, say within 30 percent.
4] If your letterbox is full to the brim with details on credit cards that have better offers than you are currently receiving, you could always approach your issuer for a better deal. They want to retain your business, so they will hear you out.
Dont’s
1] Do not use your credit card to purchase household goods. It is too expensive in the long term.
2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The more quickly you are able to pay off the debt the better.
3] Never use the credit card to buy items you can’t afford without the credit card.
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