Just ask yourself: is the credit card working for you or are you working for your credit card? Most people’s answer to this question will depend on how they use their “plastic pal” as credit cards are sometimes known. As many people with burned fingers will tell you, they didn’t realize that things had got 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.
However, this is not an anti credit card campaign. They have their benefits - in America, for example, if you want to rent a car, you must have a (major) credit card. But, consider this situation:
You get an offer in the post that sounds good, perhaps it’s a new TV or refrigerator. 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 remaining 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 you borrowed!
Does it sound worrying? Well, 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 great deal 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 song playing in your head. Furthermore, you would be wise to remember the following as well:
Dos.
1] Always plan for the purchases that you need and those that you only want. You need the essentials, but you only want everything else. The ability to differentiate might assist you plan more wisely.
2] If you are caught up in financial difficulties, it’s always a good idea to talk to the credit card issuer who might re-schedule your payments. If you simply default, that only helps to build up a bad 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 chock-full of information on credit cards with more favourable offers than you are currently enjoying, you can always approach your issuer for a better deal. They want to keep you as a customer, so they will listen.
Don’ts
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 can pay off the debt the better.
3] Do not use the credit card to buy things you can’t afford.
If you are considering changing or applying for a Credit Card, check out the free advice on our web site about using Credit Cards wisely.
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