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Getting their first credit card is an exciting thing for most people and there are good reasons for feeling that way. First of all, credit cards are convenient for buying things now and paying later. They offer you a line of credit that is available at your command and ready to be used anytime you wish. However, very few people really see the dark side of credit card business. You could potentially spend lot more money than your income and that could have devastating impact on your finances, credit rating and personal life. Some people accumulate large amounts of debt without ever seeing that money physically and find themselves in a situation where they are unable to make more than minimum monthly payment or even worse, not even minimum payment. Remember, credit card companies are in business to make money. Don't forget that every time you use your credit card you are borrowing money. You will pay a finance charge if you don't pay off your balance each month.
Using your credit cards wisely and sensibly will help you avoid financial problems and establish a strong credit rating, so here's some information to help you get your credit card problems under control.
First of all, it is important to look out for your own interests. If you're making minimum payments, it could take as much as 20 years to pay off your debt. Making minimum payment doesn't help, It increases the amount of interest you end up paying. To pay your debts off quicker and cheaper, you should pay as much as you can on your balance each month. There is nothing wrong in using your credit card for every day purchases but it is only going to work if you pay your balances in full each month. If you can't pay them off every month, you'll quickly pile up a large debt. Don't use your credit card for things you can't really afford. Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow.
Before you explore the proper use of your credit card, you need to have a very clear understanding on how you plan to use it. If you plan to pay your bills in full each month, the size of the annual fee or other fees, and not the periodic and annual percentage rate, may be more important. If you expect to use credit cards to pay for purchases over time, the APR and the balance computation method are important terms to consider. In either case, keep in mind that your costs will also be affected by the grace period. If you are unable to pay the credit card off each month, you are going to want to limit the amount that you are using the credit card so that you are not overcharging and going over your limit all the time. If you see that you are getting close to being to the set limit you really should stop using the credit card and pay as much as you can. If you find your self not able to make the payment, call your creditor and workout a payment plan. The worst thing you can do is simply forgo your credit card payment, no matter the reason. Most creditors will assist you if you let them know before you miss your payment. If you're carrying balances on your credit cards, make sure you stay within 30% - 35% of your credit limit. A large part of your credit score considers the amount of debt you have. Keeping your balances low helps you maintain a good credit score.
Don't close out a credit card without knowing how your credit will be impacted. There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history. You should limit the number of credit card applications you fill out. There will be an inquiry into your credit report for each application you submit. Your credit report contains a record of every company or institution that has evaluated your credit. It reflects negatively on your credit score if you have an inquiry that does not lead to the issuance of a credit card. Obtaining too many credit cards can affect your ability to finance other purchases as well, such as homes or automobiles.
Remember, it is easy to get in trouble with credit cards. Using a credit card wisely means planning when and where you’ll use it. More than anything, avoid using your card for impulse purchases. Generally, it’s not a good idea to use a credit card for buying gifts of any sort. Another good thing to avoid is…anything your card issuer tries to sell you. Credit card companies work hard to offer all kinds of products and services to extract money from their customers. Take credit card theft insurance, for example. You don’t need this. If your card is stolen, you’re only liable for a maximum of $50 worth of purchases. Credit card disability insurance is another loser product. If you can actually get your credit card company to activate the insurance in the event you become disabled (and it’s not easy, typically), your debt still keeps piling up. Plus, your credit card becomes disabled right along with you; you can’t make any additional charges on it. Creditors charge numerous fees for using your credit card in a country that has different currency. On top of these fees, you lose out on exchange rate as well. If you're planning to travel abroad, take travelers checks and use them instead of credit cards.
So learn from your financial habits and evaluate your risk tolerance when it comes to credit card usage. There are many people out there that has a credit card and really has no idea how to use their credit card wisely. If you learn and understand the rules of credit card game, you'll come out on top with great results but if you don't pay much attention to how you are using it and paying for it, sooner or later, you'll be in big trouble.
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