How to use Credit Cards Effectively
We can’t live with them, we can’t live without them! There is no doubt that credit card debt is a major problem with the economy. However, it is a useful tool that I feel most people simply does not understand how to properly utilize. Let’s try to shed some light on how you can use “plastic” to your advantage.
- Interest rate: Credit card companies entice customers through their introductory interest rate. An introductory rate sounds good, but can be a trap for the innocent. Generally, the customer opts for the low introductory rate, but when charges on the card, are not paid on time, the introductory period is over. That’s when the ‘after-introductory’ rate kicks in, and you find yourself paying from ten to twenty % on your credit card debt. When you are looking for a good interest rate, you also need to make sure that the interest rate won’t take a significant jump if you are late with a payment. Some companies strike the interest rate if your payment is even a day late, and the change is permanent. You don’t ever go back to the lower rate.
- Collect Reward Points: Since you are using a credit card to pay for your items, even if you pay them in full each month, make use of your purchasing power. There are a variety of different reward options, which varies from bank to bank. You can redeem those points and get a huge variety of free items ranging from electronics to car rental to movie tickets. Bottom line, you get something in return for using your card. Isn’t this better than you having to give your money away.
- Look out for special offers: once in awhile, your credit card company will offer you a low interest option to transfer your balance over. You can use this to your benefit if you have debts to pay off. Make sure that you pay off your debt before the special rate expires (usually its 6-12 months), or transfer it back to another card that offers you a low interest deal too.
- Common Credit Card Fees: Be sure to read the fine print. Credit card issuers have been pretty crafty about hiding a variety of fees that the laid-back consumer, who doesn’t bother to read all of the credit card details, may end up paying and not even be aware of it.
- Annual fees: are fairly upfront. There are cards that charge annual fees just for the privilege of carrying the card, and there are others that don’t charge annual fees at all. Ask your creditor to waive the fee. Some credit cards automatically waive the fee if you make a certain amount of purchases in a year.
- The finance charge: is an interest fee charged on revolving credit accounts. Finance charges are calculated using the APR and the balance. Creditors have different methods of calculating finance charges. The most commonly used method is the average daily balance method which applies the APR to an average of your balance each day during the billing cycle. The higher your interest rate and balance on your credit card, the higher your finance charge will be. Finance charges are a convenience cost and can be avoided by paying your balance in full before the grace period ends. If you have disputed billing errors, you don’t have to pay a finance charge on the disputed amount while it is being investigated.
- Late fees: a charge for making less than the minimum payment or after the payment due date or both so pay your bills on time.
- Over-the-limit fee: An over-the-limit fee is charged when you exceed your credit limit through purchases, fees, or finance charges. The fee usually only applies to revolving credit. Over-the-limit fees can be tough to get rid of, especially when you make the minimum payment after exceeding your credit limit. That’s because the minimum payment will reduce your balance just below the credit limit leaving no room for the finance charge that’s coming later in the billing cycle.
- Avoid withdrawing cash on credit cards: Cash advance feature on credit cards is supposed to be used in emergencies. It is not like withdrawing money from ATM or salary account. You don’t have any interest free period. Interest meter starts from the first day and the interest rate is generally 2.5%. Therefore the customers should use the cash facility on the credit card only in emergencies.
Credit cards are almost a necessity in today’s society. It has become difficult to get through life without plastic, a credit card is essential for a variety of financial transactions. And, the truth is, credit cards can be a valuable financial tool, provided you manage them effectively.
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