The Danger of Credit Cards: Tips to Help You Be Responsible and Successful with Credit Cards
The United States economy is reeling from the subprime mortgage fallout and many people are finding themselves in a financial predicament. Now more than ever, it is imperative to pay close attention to your own personal finances. Understanding the dangers of credit cards and the ins and outs of the credit card system is crucially important to financial success. Here are some tips to help you be responsible and successful using credit cards.
No Money? Put the Credit Card Away
Certainly credit cards have their advantages. They can be used as a great tool for managing cash flow between paydays. However, you really need to pay your credit card off each month to stay ahead of the game. If your cash flow isn’t enough to pay off the card every month, put the card away and only purchase what you absolutely need with cash. If you have an emergency and you don’t have the funds to pay for it, you are better off using a home equity loan at a lower rate instead of using your credit card with a high interest rate.
Remember that by using your credit card you aren’t using “free” money. You still have to pay the bill and if you don’t pay your credit card off every month, the price of your purchase goes up significantly due to the interest the credit card company charges. This means you could be putting yourself further into debt because of the interest charges that continue to add up.
Beware of Pre-Approved Credit Cards
Consumer Credit Counseling warns people of pre-approved credit cards. You have to be extremely careful with these cards. People often don’t read the small print and if the do they do, they don’t understand how much money they will end up spending. The pre-approved credit cards are often tied to the Annual Percentage Rate (APR). Consumer Credit Counseling warns that the credit card company uses the APR to establish the cost of your debt based on the percentage of the costs you have accumulated on the card. The costs are broken down monthly and the finance charge is calculated by multiplying the monthly rate by the total debt. If you are using your card often and not paying it off every month, you can imagine how much more your payment could be. If your payment history is horrible, then the APR may fluctuate as well.
Stay Clear of “Checks”
Don’t be tempted to use the “free” checks the credit card company sends you. It is extremely tempting to see a blank check that might help you out of sticky financial situation. However, they often have high APRs associated with them and this could put you in even more of a financial bind.
Be Careful of Cards Touting a Lower Rate
Don’t switch money from one card to another for a lower rate. You need to be cautious of the low teaser rates because if you are late on one payment, the credit card company can readjust your interest up to 24 percent or higher.
Read the Fine Print
This doesn’t need any explaining. Read the fine print and be sure you completely understand what the terms are for your credit card.
Only Use One or Two Cards
If you have too many cards, it is hard to keep track of exactly how much money you are spending. If you only have one or two cards, you know exactly where your money is going and you can keep a good handle on what you are spending, where you are spending it, and whether you can afford it or not. Also, if you apply for too many credit cards, it could have a negative impact on your FICO score - because too much credit is allowed to you.
Lower Your Rate
Remember, the credit card company wants your business. If you want to lower your rate, call them to see if they will lower the rate. Share that you are considering moving your business elsewhere and you would be amazed at their reaction. While you are at it, ask to eliminate your annual fee as well.
Teach Your Kids
Once you learn to be more financially savvy, teach your children the tricks of the trade as well. Don’t give them a credit card at 15 and expect they will know how to use it. Discuss your experiences with them and teach them how to use a secured card first.
If you find yourself in a financial bind, in serious debt, and you can’t pay off your cards, consider calling Consumer Credit Counseling for help. They have counselors who review your financial situation and provide a plan of action. The counselors offer a debt management program, bankruptcy information, personal finance information and even information and help for those interested in buying a home in the future.