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These days we are being constantly bombarded with the latest credit card gimmick, and it is hard to resist the promises
of purchase power and freedom. And credit cards DO offer some great advantages, but the problem is that society’s
debt from credit cards is getting dangerously high, with many people owing thousands and thousands of dollars they just don’t
have – and much of this is interest! And this suits the banks of course, because that’s how they make their billions
in profit – from YOUR card charges and interest! So, like all things financial, it’s all about how
you manage your credit card and spending habits – you can use a credit card to your advantage, but only if you use it
properly. But first of all – a bit about credit cards – the good, the bad and the ugly!
Credit Cards – the good - A convenient way to shop as you don’t need to have cash on you, and
credit cards are accepted in more and more places every day.
- A great way to shop and pay bills online where there
are only a few options for making payment.
- A secure method of payment, as long as you follow simple security procedures.
- Helps
build your credit history, provided you don’t rack up excessive debt that you can’t pay off.
- If you fully
pay off your credit card bill every month, you won’t accrue any interest charges so it becomes a minimal cost to have
this service.
Credit Cards – the bad - Some retailers charge an additional fee (1-2%
of the purchase price) for credit card processing. This is usually absorbed on cheaper items, but can be significant on large
cost items.
- Retailers are less likely to allow you to haggle or negotiate a cheaper price if you plan to use a credit
card. You can usually get a better deal with cash on large items.
- It’s easy to overspend your budget –
if your grocery budget is $100, it is easy to spend $110 and not worry about it because the credit card will pick it up. But
all these little budget over-runs add up!
- It’s easy to impulse buy – because your credit card is always
there!
- If you can’t pay off the full amount of your credit card bill in a month, any amount carried over will
attract interest – usually at a high rate - that you also have to pay back. The cost of credit can quickly add up! And
how silly does it sound paying interest on your groceries…
- The minimum repayment shown on a credit card statement
is usually not even enough to cover the cost of interest, so you will end up paying interest on interest if you only ever
pay the minimum repayment. Worst still, you will NEVER pay off the debt, even if you never buy anything on your card again!
Credit
Cards – the ugly - Credit card fraud and identity theft is on the rise! Many people have lost thousands of dollars through fraudulent activity on their credit card account –
particularly if they don’t regularly check their statements.
- You can rack up an enormous debt that you just
can’t pay off, because you can’t even meet the interest repayments.
- Bad credit card performance will adversely
affect your credit rating for other finance, such as car loans and mortgages.
- Teenagers are particularly vulnerable
to credit card debt as they are impulsive, don’t understand how credit facilities work and usually can’t afford
to pay off their debt.
Credit Cards – how to use them So, given the good, bad and ugly
point above, here are some tips on HOW you can use your credit card without getting into trouble: - Understand credit card terminology.
- Use a debit card (secured card) rather than a credit card – that way you can’t spend money you don’t
have.
- Chose a card with a low interest rate and low annual fees. Always read the fine print!
- Don’t be
tempted to accept an offer for a higher credit limit. Get a credit limit that matches your budget and stick to it!
- Stick
to your budget!
- leave your credit cards at home if you don’t plan any purchases. Just carry enough cash for
your daily requirements.
- Save all receipts and match them against your credit card history to make sure it’s
all correct – check that there a are no double ups on charges or charges you didn’t authorise.
- Contact
your credit card provider AS SOON AS YOU NOTICE ANY ERRORS.
- Compare your credit card statement with your budget and
make sure you still have a positive cash flow. File all your statements for budgeting purposes.
- Pay bills on time!
And pay the full amount if you can. If you need to carry some over (it WILL attract interest), aim to pay it off as soon as
possible. Cut down unnecessary expenditure until you do.
- Keep your credit card and personal details secure and safe
from identity theft. Report suspected fraud or identify theft to your credit card provider AS SOON AS POSSIBLE.
- Teach your kids the dangers
of credit.
So, credit cards can be a valuable financial tool or a ticking time-bomb of debt – it all depends
on how you mange it. And discover the power of credit cards comparisons and get a better deal. Otherwise, you could pay too much!
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