Credit Card – Best Credit Cards
Credit Card Use
There is a lot to learn managing you credit card or cards, plus you want to get the best credit to fit your needs. This article is meant to give a thorough overview of the particulars. Many people are drowning in credit card debt. Sometimes it is caused by extravagant spending but some people are using credit cards to live on, such as buying food and other essentials.
It is a vicious cycle if you are living off your credit cards because you are probably not paying enough each month to pay off the principal. Plus, it is probable you have a high interest on your credit card. It is imperative to change your lifestyle; if at all possible to get out of debt.
Shopping on Credit Cards
Credit Card Interest
Credit card company’s interest rate changes with the economy and currently the average is 14.87%. Some credit cards have much higher interest rates, so if you have good credit, shop around before applying for a new card. Companies can charge what they want, and this is legal.
There are other differences in cards as well. Some cards charge an annual fee, like American Express. Many reward credit cards are very popular, as the more you spend, the more reward points you earn. These points can be used for numerous things such as airfare, dining, cards for various stores and products.
Credit card balance transfers are also quite common. I get blank checks in the mail frequently that offer a low interest with usually an end date a few months away if I will do a credit card balance transfer. Sometimes this may be a good deal if you know you can pay off the balance in the allotted time frame. Some companies offer an introductory APR typically extending for six months, but then there is a significant raise. Always read the fine print.
Truth about our Credit Cards
Types of Credit Cards
When people are trying to establish credit they sometimes get secured credit cards which means they usually pay $500 to the bank, which is placed in a type of savings account. The card has a top spending balance is $500. Over time if the individual makes on time payments they will establish credit and eventually get their $500 back.
Some credit cards require that you pay off the whole balance each month such as American Express, but there is no finance charge and sometimes no limit on expenditure. However, you do have an annual fee.
Revolving credit is more common and would include Visa, Mastercard, Discover and Optima. This means you can carry a balance on which you are charged interest, plus they require a minimum payment monthly. It is typically about 5% of your balance or a minimum of $10. These are no fee credit cards.
Sears credit card or a J. C. Penney’s card is typically a revolving credit card and they are also no fee credit cards. You can now also purchase prepaid credit cards as a gift.
Financial institutions use three different ways to calculate finance charges:
- Adjusted balance - This system, which consumer experts say favors the cardholder, takes the balance from your previous statement, adds new charges, subtracts the payment you made and then multiplies this number by the monthly interest rate.
- Average daily balance - This method, which is a pretty even-handed one and the most commonly used, and works like this: The company tracks your balance day-by-day, adding charges and subtracting payments as they occur. At the end of the period, they compute the average of these daily totals and then multiply this number by the monthly interest rate to find your finance charge.
- Previous balance - This method generally favors the card issuer, according to consumer experts. The issuer multiplies your previous statement's balance by the monthly interest rate to find the new finance charge. This means you're still being charged interest on your balance a whole period after you've paid it down!”
The balance determines what you will pay; meaning the interest rate and the way your finance charge is calculated. For example, take a high-card rate that you charge a $1000 on a 23.99% credit card and then don’t charge anything else and make minimum payments monthly. The payment starts at $51 and slowly works its way down to $10 which means you will make 77 payments over the next 6 years, paying $5733.59 in interest.
Now another example of a low-rate card has you charging the same $1000 amount on a 9.9% fixed rate card. The minimum payment will start at $50.41 and go down to $10. You will make 17 fewer payments, finishing in 6 years and paying $176.in interest which is a savings of $400. This gives you an idea of how important your interest rate is and also how long it takes if you always make minimum payments.
Extra Fees on Credit Cards
Other problems that are quite costly are late fees and over-the-limit fees. These are newer charges but most cards have them now. Issuers typically will bump your interest rate up to 23.99% after a specific number of late payments. Always read the fine print on letters they mail to you as you may not be aware of their policies otherwise. The company may charge you the inflated interest rate for the term of the account once you have those late fees. All companies report your payment record to credit reporting agencies, and a few late payments can stop you from financing a house or a car.
Watch Your Bill for Mistakes
Carefully check your credit card bill each month to make sure the charges are all legitimate, to check for any finance charges, late fees or over-the-limit charges to make sure they are justified as they do make mistakes. The Fair Credit Billing Act does apply to credit cards but not debit cards which mean you have 60 days to dispute a charge that is incorrect. Many errors can be resolved over the phone; however, you may write a letter with your name, account number, date and amount of the disputed charge. Do not send a payment and send it certified mail to prove it has been received. If it is determined that there was an error the credit card company will remove the charge and any interest or late fee associated with the error.
Drowning in credit Cards
Lenders Look at Your History
This is what the lender looks for when determining if you qualify for a credit card:
- Good payment record.
- Control of debt load, in other words not living above your means.
- Signs of stability, such as longevity on your job and in your home.
- Lack of credit inquiries. All inquiries stay on your credit report for two years. Lenders perceive numerous inquiries a poor risk.
- Lack of available or unused credit. They advise you to get rid of cards you don’t use. I learned this earlier this year and I have a couple of cards I’ve had for a very long time and seldom use, but I didn’t want to cancel them. So I charged something on both of them and will do that a couple of times a year. I did close two other accounts as it is looks better on my credit for me to close an account I am not using than the company canceling my credit card.
I use Quicken to track my finances and when I buy something even on credit I put it in the Quicken program as a current purchase. Then, when the bill arrives, I pay the bill in full, erase the credit card amounts in Quicken and it doesn't change my bottom line. That way I always know how much money I have to work with, and I always pay all credit cards off when the bill arrives. We live on a budget, so this helps me always be aware of the bottom line. I found that I am more aware of what goes out during the month by using this little trick.
Each person has their own way of handling their budget, but the most important thing is to have a budget and some long term goals. If you have a lot of credit card debt, make a plan to get it paid down. You will sleep better at night!
© 2011 Pamela Oglesby
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