In the US, there are over 350 million credit cards circulating. So, if you’re over 18 chances are you’ve got one. But do you know about your credit cards – the good and the bad? Maybe you like them because they’re convenient and help you get what you want when you want it. On the flip side, what if you’re finding it hard to pay off your balance in full? That’s when the tricky part comes in.
Credit Cards – The GOOD
Look for Cards with Periods of 0% Interest
Credit card companies want you to use their cards so entice you with a 0% time period. It’s like borrowing the money you need for free! There are some things to keep in mind like making their minimum payments each month not going over the agreed upon credit limit. These are things you may not notice or have not noticed about a card you’ve applied for or are already using. Make sure you know the terms of your credit card agreement or you could be charged interest.
TIP: Put the date in your calendar for when the 0% interest runs out and make sure you pay off the bill in full. Because once 0% interest goes away you will be charged interest not just on the new purchases but all of your credit that you’ve been carrying on that card.
Looking to Make a Large Purchase? Credit Cards Can Help
Say you want to buy a new card, fridge, or fun vacation. Well, your credit can pay for these pricier things when you don’t have the cash. They give you the freedom to make that purchase right now! This is particularly useful when there is a special deal or limited-time offer that won’t wait for you to save up the cash before your next paycheck.
These purchases make sense as long as you can pay off your credit card in full when it’s due. In some instances, if you’re only saving a small amount but then having to pay interest on what you’ve borrowed on your credit card it might not be worth the savings.
You may want to see if the store or site you want to make your purchase through is offering a lower interest rate on the purchase than your credit card. Or they may have installment plans or have a 0% interest period on the purchase.
Credit Cards Offer Protection on Your Purchases
If you have a problem with your purchase, the credit card company you used could help you get a refund, replacement, etc. This can be for products, vacations even services. It differs from card to card and company to company so check your agreement and if you have more than one card use the most advantageous one for your big purchase.
Your Card May Give You A Little Something Extra
Looks for cards that give you rewards and special perks like air miles, cash, points toward services or gifts, etc. While perks sound great, don’t be lured into accruing perks by using your card more while you’re paying super high interest rates. The only time the perks are worth it is when they’re free! They’re completely free to you when you pay off your card in full each month.
This is Borrowing In a Very Flexible Form
When you use your credit card you are essentially borrowing money. It’s like a personal loan but no application process each time you get the ‘loan’. You get to borrow when you like until you reach your credit limit and you get to repay it when you want, albeit paying a lot of interest if you spread out your payments too much. If you get behind on your payments interest debt can pile up quickly, making it harder and harder to pay off.
You Have Emergency Back Up
If you have a financial emergency and have to pay a bill quickly like for your car, a medical bill, etc your credit card can come to the rescue until your next paycheck arrives and allows you to pay off your card in full or at least make your minimum payments.
Use Your Credit Card to Improve Your Credit Score
This may seem counter-intuitive but f you have a less than stellar credit rating and want to improve it, use your credit card. Using your credit card in a very controlled manner can help boost your credit rating. It’s as simple as staying under your credit limit and paying off your balance in full each month. This then shows that you are a good credit risk for future borrowing. Also, it’s best to not have too many credit cards so close down the ones you don’t use, even store cards. Too many cards make it look like you have the potential for overspending.
The BAD About Credit Cards
Spending Too Much is a Temptation
Having the credit card in your wallet or on your phone makes it oh so easy to go ahead and make purchases. Since that debt is then sitting on your card account and not being reflected in your bank balance yet it can lull you into a false sense of security. Until… that bank statement arrives.
You’ll Pay Super High Interest Rates
If you’re starting out with an 0% interest card then this doesn’t affect you right away but it will. If you carry a balance on your card and only pay off the minimum each month or worse, nothing, then you will be charged interest rates that can send your balance soaring.
When you have any balance left on your card after your payment that balance accrues interest every day until it’s paid. And next month, if you don’t pay off the balance then you continue to pay interest on your balance but now you’re paying interest on your interest. It just keeps going until you pay the balance in full. The more it grows the harder it can be to pay it off. Try to avoid this by paying the minimum payment at the very least but for the best credit history pay off the whole thing each month. Learn how to consolidate your debt.
More Fees Than You Expected
Here’s where paying attention to your credit card agreement is really important. Most cards charge a different fee for different services i.e. money transfers, withdrawals of cash, and using your card when traveling overseas. Others tack on an annual or monthly fee. Be clear on what you’ll be paying for all the services you may need. Shop around when looking for cards because there may one better suited to what you plan to be using it for.
And Even More Fees
When you exceed the credit limit set on your card or don’t make any payment in any particular month then you can be charged a penalty fee on top of the interest you’re being charged.
You Could Tank Your Credit Score
Not paying off your cards or constantly being late with payments is recorded and reflected in your credit score. The problem is that a good credit score is important for future borrowing. A bad credit score or rating can block you from future opportunities. Learn what your score is and try to keep it in the good range.
When used carefully a credit card can have so many advantages and allow you to make the purchases you want when you need to but if you are not paying off your balance in full or that leas the minimum payment then you are setting yourself up for spiraling debt and a bad credit score