Category: Credit Cards

How to deal with credit cards – a definitive guide

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Credit cards can work for you

There a lot of people out there that have fallen into the credit card trap and ended up deep in debt.It has probably taken what seems like a lifetime to pay off that debt too with interest that just keeps piling up. Yes, they can make your life miserable if not used correctly but they can also give your finance portfolio a boost if used wisely.

How to deal with credit cards

How do credit cards work?

Most credit cards come with a spending limit of which you can spend too. It is just like a cash loan where the money is put into an account for you to spend. Only with a credit card, the amount is allocated to your card.
Each time you use your credit card to pay for something you are spending a bit of that loan amount. If you pay the balance in full each month most institutes will not charge you interest or will charge low interest.  If you only pay a portion of the balance you will get charged monthly interest on the amount used.

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Tips for using a credit card

Read the fine print

A lot of times we just sign off the agreement and terms documents when applying for a credit card.
That can get people in a lot of hot water down the road as there are things in that agreement that you need to be aware of and fully understand.  There is no shame in asking what it all means or getting someone to read it over for you to ensure you do understand it.
You are entering into a binding legal agreement and as such you need to go in with your eyes open.

Find out the interest rates

Always make sure you know what the interest rates on the amounts are.  This way you know how to better budget for the installments at the end of the month. You can also check that you are being charged correctly.

Check your statements

Most of us look at the bottom line or what we owe for the month on our statements. What we should be doing is going over it thoroughly. Make sure we know the payment due dates, that every transaction on there we are aware of and that we are being charged fairly and correctly.

Pay your card on time

It is very important to pay your credit card on or before the cards due date. If you can try to pay it in full or as much as you can. Even if it is a few dollars above the monthly requirement.

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Use it wisely

Don’t use your credit cards as an extension of your monthly income. This only leads to financial troubles down the line. Try to use it for emergencies and those large purchases that you have fully budgeted for.If you are going to use it for grocery shopping ensure that at the end of each month you put that shopping money back into your credit card.  Remember it is a short-term loan, not extra money.

Offers

Don’t get sucked in on all the special offers that the financial institution has for you. Offers like insurance covers, skip a month of payments, etc.
Ultimately these offers are going to end up costing you.

Pros and cons of real money credit cards

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Credit cards

Like everything in life, there are the people who love credit cards and then there are those that dislike them. Each of these people has very valid reasons for their choice of credit cards can be both a blessing and a curse at the same time.

Pros of using a credit card

Bigger shopping selection

With a credit card, you have more shopping options as you can shop online. As you know shopping online not only opens up your local shopping area but the world.
You have instant access to downloads for books, music and various media. You can shop from the comfort of your home and have your goods delivered to your doorstep avoiding all the hustle and bustle.

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Instalment plans

A lot of credit cards with various installment plans whereby you can pay the shop the full amount for your good and then pay off your credit card purchase in affordable monthly installments.

They are faster to use

A credit card is a lot easier to use all you have to do is a swipe and your purchase is paid for. This cuts down the time-consuming writing of a cheque, searching for the cash and or the high fees you pay for withdrawing the cash.

Build a good credit history

You can use your credit card to boost your credit history which if you manage correctly can be used to give you a better rating. Good ratings make it easier for the bigger purchases such as houses and cars.

Fraud and or theft protection

Unlike cash, if your credit card is stolen you can stop all payments on the card. Most come with this protection cover so any purchases that may have gone through after it was stolen are sorted out.
You can stop payment on transactions that you feel are not correct and it cuts down on the need to carry around cash.

Rainy day cover

They come in handy for emergencies and most cards have reward point systems whereby you get points for purchases. These add up and can help with the purchase of various thing such as air tickets, petrol, etc.

Cons of using a credit card

Risk of getting into debt

A credit card can be very tempting in that if not kept in check you could potentially spend more than you can afford.  There are numerous studies that show people are more willing to spend on items with a credit card. Items that they would not normally buy if they did not have one.

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Impacts your future income

Every time you make a purchase with your credit card you are basically borrowing money from your bank. So, the following month that repayment will have to come out of your salary, this includes the fees for that loan.

Credit card terms and fees

A lot of times people take a credit card no fully understanding the terms and conditions. This can lead to the user getting into hot water or a huge shock when one starts to realize that their card is costing them more than they bargained for.
Some credit cards come with great offers, but they also have the darker huge fees and strict terms that go with all the deals.

Have the potential to negatively impact a person’s credit scores

Just like a well-managed credit card can give your credit score a boost so can they give it a black mark.
If you misuse your card or have payment problems it will negatively impact credit scores.  Keep in mind that misuse also leads to high-interest rates.