As a qualified credit consultant, most of my time is dedicated to assisting individuals who have become excessively dependent on credit cards. While I’m generally not in favor of using credit cards, they can potentially be beneficial when handled cautiously.
The landscape of the credit card industry has evolved significantly in recent years, and understanding the guidelines can be vital in this changing game.
Take some time to examine what is in your wallet, particularly those credit cards. Evaluate the impact of these cards on your credit — are they working in your favor or against it?
UNDERSTANDING THE RULES
There exist several misconceptions about credit cards and their functioning. To use credit cards to your advantage and position yourself on an equal footing with your credit card issuer, it is essential to become astute about credit card rules.
SETTLE YOUR CREDIT CARD DEBTS COMPLETELY, OR AS MUCH AS POSSIBLE.
Credit card companies often imply that it’s enough to make the minimum payment each month — that’s what they state on our bills, after all. By paying just the minimum, your account remains active and your credit rating stays untouched. But, keep in mind that this minimum amount is usually just about 4% of your total balance. Regrettably, you’re also paying interest on this entire remaining balance, potentially at rates of 29% or more.
The CARD act has exposed some of these deceptive practices of credit card companies. Now, your statement also shows how long it would take to repay your balance if you only make minimum payments. But many people have been conditioned to think they only need to pay the minimum, despite the reality that this causes the interest on your balance to compound.
UNDERSTAND THAT YOUR CREDIT LIMIT DOES NOT REPRESENT YOUR AFFORDABILITY.
It can be exciting to get a new credit card with a credit limit of $5000 and think, “Wow I can spend $5000.” But this misunderstanding can put you in a challenging financial position and harm your credit score by using all of your available credit.
CREDIT CARD INTEREST RATES ARE NOT ALWAYS CONSTANT.
Thanks to the Card Act, credit card companies have resorted to variable interest rates instead of fixed ones, meaning they can increase when the market fluctuates.
Plus, many consumers don’t realize there are different rates for different kinds of credit card activities, for example, cash advances, which are typically charged at a significantly higher rate.
Remember, missing or late payments can rocket your interest rates – what once was a 15% interest rate card could shoot up to 30% – quite the leap!
WATCH OUT FOR FEES.
Credit card companies love to charge additional fees. These can include:
– Late payment fee: $35
– Balance transfer fee: 5% of the transferred balance
– Cash advance fee: 5% of the amount withdrawn or a minimum of $5 or $10
– Foreign transaction fee: 3% of the transaction
These fees can be avoided with proper planning, timely payments, and use of a debit card for cash withdrawals.
While credit cards do offer certain conveniences such as purchase protection, easy online transactions, and simplified expense tracking, they come with certain costs.
If you neglect to understand and follow the rules of credit card usage, you may find yourself in a situation where you need help with debt. Credit card companies make it easy to accrue debt but hard to extricate yourself from it.
Hence, abide by the rules of the game and try to pay off your balance entirely every month, or as much as you can afford, turning your credit cards into tools rather than burdens.
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