Having a credit card can be a great thing.
- You don’t have to carry large amounts of cash wherever you go because you can use your card for larger purchases.
- Credit cards are excellent for traveling and are accepted nearly everywhere.
- They are great for bigger purchases or when an emergency pops up - like when your refrigerator dies. Some cards even come with protections that cover your purchases in case of theft or defects.
- If used sparingly, and paid off quickly, credit cards can even improve your credit score. It can demonstrate that you responsibly pay off your debts – and that you pay them on time.
You need to use credit cards wisely so they don’t cost you more than necessary. When you use your credit card you’re taking out a loan that needs to be paid back – and the sooner the better. Credit cards almost always have higher interest rates than regular installment loans, so here are some things you don’t want to do with your card … ► Don’t use them for minor everyday purchases. Using a credit card for routine items is like taking out a loan for a pack of gum. When you use cash, or your debit card for these things, you’ll be more likely to think twice before overspending. ► Don’t just make the minimum payment … unless you absolutely have to. Minimum payments can cost you a lot in interest fees because it takes far longer to pay off your bill. Pay your full balance off each month whenever possible. As long as you pay in full by the due date each month, you won’t be charged interest fees. Here’s a quick example to illustrate the importance of paying more than the minimum: If you owe $2,000, your initial minimum payment will be around $40. And if your interest rate is 15% and you keep paying the minimum payment listed on your monthly statements, it will take you 14 years to fully pay your bill … and you will have paid a whopping $2,246 in interest charges alone. And that’s if you don’t charge anything else on your card during that 14 years!
► Don’t skip a payment or pay late … this could lead to costly late fees, a higher interest rate, and it can damage your credit score.
Unless you have one of the few cards that doesn’t charge a late fee, you can face a late penalty of $25 for the first occurrence, and if it happens again within the next six billing cycles the fee will be $35. Credit card companies can even raise your interest rate due to late payments. ► Don’t use your credit card for cash withdrawals … it’ll cost you. You’ll get hit with a fee when you withdraw the money, pay a higher interest rate on cash withdrawals, and interest charges begin as soon as you receive the money. Unlike regular purchases made on your card, there is no interest grace period when you withdraw cash with your credit card. Interest charges begin immediately. Then there are the fees … For small amounts of money, the transaction fee is likely to be around $10, but for larger amounts you could be hit with a charge of 3% to 5% of your total withdrawal. That could be $20 on a $400 transaction. And then there is the higher interest rate. Nearly all credit cards carry a significantly higher interest rate for cash withdrawals, so you’ll be paying one rate for your normal charges and a higher rate on money you withdraw. Always read the fine print when applying for a credit card or when you get your statement so you understand all your costs and fees. And remember: Always pay your card charges off as fast as you can. Credit card costs can be low to non-existent if you do the right things: spend carefully and pay your bills quickly. So be smart … be in control of your credit card.
