Credit Cards: An Overview
With so many different types
of credit cards out there today,
how do you know which one is right
for you? In a nutshell, the best
credit card for you depends on your
personal credit habits. Let's
take a closer look:
If you are a convenience user,
you pay your balance off in full
each month. For you, interest rates
are not a huge priority, since you
don't keep a revolving balance.
In your case, it is best to find
a no-fee card, which should be quite
easy to find, since many cards available
today have no annual fees attached.
If you are a credit user, you often
carry a balance from month to month.
You may even only make the minimum
payment required each month. In
your case, interest rates are very
important: you need to find the
lowest rate possible (10-13% is
a good range). Also, be careful
when it comes to cards that tempt
you with ultra-low introductory
rates, since they nearly always
jump up to very high rates once
the introductory period (usually
a few months) ends. Unless you can
pay off the balance before the rate
goes up, you might want to steer
clear of these cards!
If you are a combination user,
you generally pay off the balance
in full at least 50% of the time,
and the rest of the time you pay
off any balance carried in several
months' time at most. Which
type of card is best for you? It
depends! Take a look at your statements
and see how much you paid in interest
over the last year. Compare that
to what you paid for your annual
fee. If the difference between interest
paid and the annual fee is small,
there's a good chance you
can cut your costs significantly
by simply switching to a card with
a similar interest rate and no annual
fee. If you can find a card with
an even lower interest rate and
no annual fee, that's even
better still!
What about incentive cards?
Some types of cards offer incentives,
such as airmiles, in exchange for
an annual fee. These annual fees
can get quite pricey, but if you
can benefit from the rewards/incentives
offered, can be worth it. Using
an airmiles incentive card as an
example, if it takes you 3 years
of accumulating points on the card
to get one free flight, and the
annual fee is $100, unless that
free flight is worth well over $300,
consider passing on the incentive
card.
Help! My card is "maxed"!
"Maxed", which is slang
for maximum or maximized, ironically
means "to make the most of
or best use of". However,
if your credit card is "maxed",
and can only make the minimum payment
each month, you are definitely NOT
making the most of your card. This
situation calls for drastic measures:
you need to take serious stock of
your finances, budget very carefully,
and work very hard to eliminate
this high interest debt as quickly
as possible.
Credit Card Savvy
Despite the fact that credit cards
are misused and relied upon far
too heavily by many, they do have
terrific advantages when used properly.
Credit cards can be extremely useful
when it comes to convenience, e-commerce,
online banking, theft protection,
consumer insurance, and building
a good credit profile.
Here are some tips on how to use
your card(s) effectively without
falling into unaffordable debt:
Pay your balance in full. Think
of your credit card balance as you
would rent. If you didn't
have enough money to pay your rent,
would you send your landlord 2%
of what you owed and tell him to
charge you 16% interest on the rest?
Definitely not! The moment you start
carrying a balance is when the interest
charges start ticking. By paying
off your card in full each month,
you won't have to pay any
interest. If this is difficult for
you to do, consider getting an American
Express or a similar card that requires
the full balance to be paid each
month. This may come at a price,
through high annual fees, but will
keep you from accumulating even
higher interest payments.
Use one card only. By having just
one credit card, you can more easily
track your purchases. It's
also a lot easier to pay one bill
rather than three or four! Also,
if you can't fit all of your
credit card spending on one card,
that's a sign that you are
probably spending too much.
Set spending limits. Take a few
moments to crunch some numbers and
figure out exactly how much money
you can realistically afford to
pay on credit card debt at the end
of each month. Once you have this
number, commit to yourself not to
exceed it. After all, you wouldn't
want to end up paying more in interest
than an actual item cost you to
begin with, would you?
Choose the right card(s) based on
your spending habits. As previously
mentioned, different cards offer
different options, so make sure
you choose one that suits you best.
If you tend to carry a balance each
month, choose a card with a fixed
low interest rate. If you frequently
buy valuable electronic or computer
equipment, consider a card with
extra warranty protection.
Shop online. Studies show that people
tend to make far fewer impulse purchases
online, in part because they cannot
touch, smell, hear, or feel products
when shopping online. Shopping online
also allows you to more easily comparison
shop and keep a closer watch of
what you are spending.
Monitor your statement for inaccuracies
or fraudulent activity. Imagine
working so hard, paying off all
of your debt each month, only to
have to pay for mistakes or someone
else's charges. Keep track of your
charges each month, then when your
statement arrives, check your records
against activities showing on the
statement. Report any discrepancies
to your creditor immediately.
In closing, by following the simple
steps above and being vigilant with
your spending, you can make the
most of living in a credit card-filled
world.
|
