Just ask yourself: is the credit card work for me or am I working for the credit card? Most people's response to that question will depend on how they treat their "plastic pal" as credit cards are sometimes known. As many people with huge credit card debts will tell you, they didn't realize that things were so bad until too late, because most credit card companies try so hard to make themselves seem like a charity. Well, take it from me, they aren't.
But this is not an anti credit card campaign. They have their uses - in America, for example, if you want to rent a car, you have got to have a (major) credit card. But, consider this scenario:
You receive an offer in the post that sounds good, maybe it's a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit so you immediately purchase the item. Typically, here is how your repayment schedule will play out. Most credit cards charge a minimum percentage of the total balance (usually 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 towards the principle!
Does it sound worrying? Well, it doesn't have to be. The moral of the story is to use the credit card very, very carefully.
Credit Cards Dos and Don'ts
There is a lot of truth in the advice 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 have to have and those that you just want. You need the essentials, and you want everything else. The ability to make a distinction might help you plan wisely.
2] If caught up in financial difficulties, it's always good 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 next time.
3] Unless it is an emergency, remaining 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 deals than you are currently receiving, you may always approach your issuer for a better deal. They want to keep your business, so they will hear you out.
Don'ts
1] Do not use your credit card to purchase household items. It is very expensive in the long term.
2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The quicker you are able to clear the debt the better.
3] Do not use the credit card to purchase things you can't afford. - 30462
But this is not an anti credit card campaign. They have their uses - in America, for example, if you want to rent a car, you have got to have a (major) credit card. But, consider this scenario:
You receive an offer in the post that sounds good, maybe it's a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit so you immediately purchase the item. Typically, here is how your repayment schedule will play out. Most credit cards charge a minimum percentage of the total balance (usually 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 towards the principle!
Does it sound worrying? Well, it doesn't have to be. The moral of the story is to use the credit card very, very carefully.
Credit Cards Dos and Don'ts
There is a lot of truth in the advice 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 have to have and those that you just want. You need the essentials, and you want everything else. The ability to make a distinction might help you plan wisely.
2] If caught up in financial difficulties, it's always good 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 next time.
3] Unless it is an emergency, remaining 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 deals than you are currently receiving, you may always approach your issuer for a better deal. They want to keep your business, so they will hear you out.
Don'ts
1] Do not use your credit card to purchase household items. It is very expensive in the long term.
2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The quicker you are able to clear the debt the better.
3] Do not use the credit card to purchase things you can't afford. - 30462
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If you are considering swapping or applying for a Credit Card, have a look at the free advice on our web site on using Credit Cards wisely.
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