Credit cards are a double edge sword. They can help make your life a financial heaven and hell depending upon how you use them. Following are some tips on using your credit cards wisely. The benefits of using your credit card wisely include but not limited to cash back, bonus points, airline miles and at best a great credit score. On the other hand if you decide to use them in an unwise fashion, you might end up in a mountain of debt.
Rule No. 1 is to pay off all you balance every month. You will have to pay interest on your spending if you don’t do that and that interest rate is very tricky. It takes a lot of discipline to pay back balances on time. According to a recent report by Federal Reserve, Almost 40% of all house holds in America carry a substantial amount of credit card debt.
Protect Your Credit Score
Make all your payments before the date they are due. Late fees can pile up quickly as they are around $20 – $50. If you miss more than two payments that will automatically increase your interest rate to “Default Rate” (around 24% to 30%) . Late and missed payments also lower your overall credit ratings. That can trigger interest rates on other loans to go up as well as getting soft loans in future impossible.
Only Keep the Cards You Need
Most of industry experts recommend that you should carry at least 2 and at most 6 credit cards. Stay in this range. If you apply for lots of cards that will damage your credit score. Similarly, closing many cards at the same time will also hurt your credit score. So better safe than sorry.
Read the Fine Print.
It is always good to know the interest rate you will be charged, also it is very important that you know the grace period for paying your balance before they start charging interest and last but not the least be aware of your credit limit.
Beware of the companies that use two-cycle billing? (Because two-cycle billing means you might have to pay interest even when you carry no balance.) Also, 50% of credit cards these days come with a “universal default” stated in fine print. This clause allows credit card companies to increase your interest rate if you are not paying on time their credit card bill or… Yes OR any other bill.
If you have a good credit score (i.e 700 or more) then you may be able to get a better interest rate or convince the credit card company to drop the late fee.
Stay in your Limit
Never exceed 40% of your credit limit on any of your card. Credit bureaus don’t give a dime if you regularly pay off your balance at end of each month. They’re only interested to know how much of your available credit you actually use. If it is excessive, It is likely that your credit score will drop.
The devil in the details
After Bookies, Credit Card companies are worst of all crooks. They market many kind of cards that feature low interest, rewards or other benefits. You should be very very careful about the terms and conditions, especially those terms that are subject to change.
If you’re transferring the balance on your existing card to a new card that promises lower interest, find out how much the company will charge as Balance Transfer Fee. Always insist that the balance transfer be done via electronic fund transfer. This way you don’t accumulate interest on both the old and new accounts. Also you should be aware that most of these low-interest rate introductory offers only apply to the balance transfer. These attractive interest rates might not apply to new purchases.
Reward Cards that provide benefits like cash backs and air miles sound too good to be true. Most of the times they really are too good to be true. They usually charge a higher interest rate, which offset the reward if any. situation is even worst if you carry a balance on such a card.
Worst thing about these reward offers is that companies can change these offers or even cancel them with little notice and may come up with new conditions to earn rewards for example, you have to spend a X amount to earn the X points in reward. (Such a non-sense)
Well credit cards are not all evil. They are god send in some situations. for example if you buy an item that proves to be defective or just simply protest a charge, your credit card company is legally bound to investigate the matter. Also If your card is stolen, you’re not liable for any unauthorized charges above $50.
Never Use “Convenience Checks”
Never Never use “convenience” checks that your credit card company sends you through unsolicited snail mail. They’re costly (hidden fees upto 5% of the amount you write). These so called convenience checks have no grace period and carry a hefty interest rate. These Checks also don’t provide you with the kind of consumer protection you get when you make a purchase with your credit card.
Credit Card Protection insurance
Credit card protection insurance is normally useless as it generally covers only the minimum payment incase you become disabled or unemployed. The interest continues to build up and get added to your outstanding balance.
Stay Clear of Store Cards
Each department store credit card account you open drastically reduces your credit score. It might entitle you to cardholder’s discount, but at the end they are costly and not worth it. If you do frequent a store a lot, like twice a month then may be but limit yourself to one card at most..
When things have gone bad and credit score has gone sour, easiest way to rebuild credit score is to get and use a few credit cards. But getting back into the credit game this way comes with its own drawbacks and hazards. Credit Card companies try to take advantage of your situation and charge you interest rates in range of 18% to 29% range and give you a very small spending limits. Such cards also have extra fees hidden in the fine print of credit card application or monthly statement. My Advice… Don’t take the bait. These companies will try to issue you many low-limit cards and if you get trapped, you will find your self in another mess of debt, late fees, over limit fees , high interest rates, collection agencies calling…..and what not and what not…
If for any reason you have fallen down the financial ladder into drain of debt, Please Only seek counseling from NGOs certified by National Foundation for Credit Counseling. Know your rights and protect them.