| How to Manage Your Credit Cards - and avoid debt |
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Credit cards, if used unwisely, can lead to a mountain of debt. If you charge more than
you can afford, make low monthly payments, or pay late, you may be headed for trouble.
However, if you learn to use credit cards wisely, they can be convenient, help build good
credit, and prove useful in emergencies.
Don't Use Your Credit Card as a Loan
A credit card can be two things, depending on how you use it. If you carry a balance, it is
a very high interest loan. If you make only the minimum payment (usually 2-3% of the
balance) each month, you will be paying off the debt for years and years to come,
including a huge amount of interest.
On the other hand, if you pay off the balance each month, a credit card becomes a
convenient way to purchase items and services without carrying around a lot of cash.
Use your credit card as a cash substitute, not as a high-interest loan.
Charge Only What You Can Afford
Don't use a credit card to finance an unaffordable lifestyle. If you can't pay off the entire
balance every (or almost every) month, then you are overspending. Use these
guidelines to determine what you should and shouldn't charge:
You have cash in the bank to cover the purchase. If you have sufficient cash in the bank
to make a purchase, go ahead and charge it if you wish. Then pay off the balance in full
when you get the statement.
You don't have enough cash to cover the purchase, and the item is not for an
emergency. If you don't have enough cash to purchase the item or service, don't charge
it. Instead, save your money (preferably in an interest-earning savings account) until you
can afford the purchase.
You can't afford the item or service, but you need it right away. If you can't afford an item
or service, but need it now (for example, you must repair your car so you can get to
work), charge it. But, at the same time, make a plan to pay off the balance over time --
figure out how much you can pay each month and how long it will take you to pay the
balance off. Then, stick to it.
Don't charge something if it won't exist when the bill comes. A good way to cut down on
credit card debt is not to charge anything (like a meal, groceries, or going to the movies)
that won't exist when the statement arrives. By paying cash for these kinds of things, you
save your credit for true necessities.
Create a Budget
If you cannot keep your credit card spending in check, create a budget. Make each
credit card purchase only within the framework of your budget. If you can't stick to your
budget, then don't carry your credit card with you (you may want to keep one in the
house for emergency use only).
Pay All (or Most) of the Balance Off Each Month
The single most important rule about wise credit card use is this: Pay off the entire
outstanding balance each month. If you must carry a balance from time to time, pay off
most of the balance each month. If you can only make the minimum payment each
month, you are in over your head. Stop using the credit card until you pay the entire
balance off.
Pay on Time
Penalties for late payments add up. And, many credit cards jack up your interest rate if
you pay late a few times. Late payments also damage your credit report.
Have Only One or Two Cards
You really only need one card, or two if some vendors don't accept your main card. With
one or two cards, you can keep track of purchases and make sure you pay each on
time. If you have to use one card to pay off the balance of another, you are in trouble.
Don't Get Cash Advances
There are three reasons why you shouldn't use a credit card for cash advances. You will:
pay higher interest pay transaction fees, and not get a grace period (which means you
pay interest from the day you get the money, even if you pay your balance in full when
the bill comes). Instead, go to the bank or use an ATM card.
Don't Sign Up for the Special Services
Credit card issuers bombard cardholders with ads for products such as credit card fraud
protection plans, travel clubs, and life insurance. These are almost always overpriced or
provide something you don't need. Shred the ads you receive without reading them.
Keep Good Records
Keep all credit card receipts and reconcile them with your statement each month. Review
the statement as soon as you get it.
For more information on finances, debts, and how to regain financial health, read Solve
Your Money Troubles: How to Get Debt Collectors Off Your Back & Regain Financial
Freedom (Nolo).
| Copyright 1996 - 2009 by TurboSystemsCo |