Credit Cards - your servant not your master
Credit Cards - the Servant turns the tables
An increasing number of us rely on credit cards for our spending needs.
Whether it's to spread the cost of an expensive purchase over several months, or to gain points towards a reward item, consumers are using credit cards more than ever - and are owing billions of dollars as a result.
With the relatively easy availability of credit today, more can get in on the act - from greater numbers of companies offering Visa, MasterCard or store cards, to more people being approved for cards, including students and even those with shaky credit ratings.
A credit card is a simple way of obtaining a credit rating and, used wisely, can help provide flexibility in spending and even bonuses like cash back offers or travel credits. However, they can also be an easy way to get into serious debt, when used improperly.
Many people are lured into applying for certain credit cards with the promise of low - sometimes ridiculously low - interest rates, but depending on your personal circumstances and financial situation, there may be more important factors to consider.
It's also crucial to check the fine print, as a 0% may only last for the first six months, and then jump to 19% afterwards. A store card offering 15% off with the first purchase may be carrying a prohibitive 29% plus interest rate.
As with all financial products you need to look before you leap. Tread carefully and take advice. Read and remember this article!
Lesson 1 - Its not unlimited money
Do you remember when you got your first credit card? Can you remember the surge of excitement when you discovered the credit limit you'd been given? Did you think, "Wow! I've been given $5,000! Let's hit the shops!"
We all look on our credit card limit as 'our' money. But its not. Far from it. Using your credit card and not paying your loan back on time incurs interest charges, very high interest charges. If you don't pay back the full amount of your loan you're playing into the hands of the Credit Card issuers - the Banks - or The Enemy as we call them.
So Lesson 1 is:
IF YOU HAVE TO BORROW MONEY FROM YOUR CREDIT CARD, MAKE SURE YOU PAY IT BACK IN FULL BY THE APPOINTED TIME.
If you do this you will not only avoid paying hefty interest charges but you actually get an interest free loan from The Enemy. YOU will be the Master and THEY will be the Servant.
Lesson 2 - Credit Card Cash Withdrawals - NO NO NO!
You know the feeling. You're in town, want a meal or a drink with a friend you've just met and you've got no cash in your wallet/purse. But you've got your trusty Credit Card and you know there's an ATM just round the corner. You can just take out $50 or $100 cash and your problem's solved. right? Well wrong actually, and here's why.
When you use your Card to withdraw cash you incur interest from the moment you make the withdrawal. Hefty interest. Plus you'll be charged a cash advance fee of at least 2% on top. You're playing into the hands of The Enemy. You can practically see them licking their lips and rubbing their hands together as you slip your Card into the slot. They will be the Master, you will be the Servant.
So plan your finances. Think ahead. don't be put in the position where you HAVE to use your Credit Card for cash withdrawals.
So Lesson 2 is NEVER USE YOUR CREDIT CARD TO OBTAIN CASH. ITS ONE OF THE MOST EXPENSIVE WAYS YOU CAN FIND TO BORROW MONEY.
Lesson 3 - Don't pay an annual fee for your card
There is an abundance of choice when you're searching for a Credit Card so there's no need to choose one which carries an annual fee. No matter what the adverts say about what your card 'says about you,' if you're paying an annual fee your card says you're a Servant, not a Master.
So Lesson 3 is
CARDS ARE EXPENSIVE ENOUGH ALREADY. DON'T PAY AN ANNUAL FEE FOR THE PRIVILEGE OF OWNING ONE
Lesson 4 - Store Cards - NO NO NO
Almost certainly, individual store cards - for furniture, clothing or electrical goods retailers - are an expensive alternative to regular credit cards.
Though they often offer bonuses, such as discounts on initial purchases or 'favoured shopper' discount days, they will likely have much higher interest rates than a Visa or Mastercard. An outstanding balance on an individual store card could quickly grow into a much larger bill than the original purchase. Don't be seduced by silver-tongued salesmen in the store. If you just HAVE to make the purchase use cash or cheque.don't borrow money at the Store Card's exorbitant rates.
So Lesson 4 is
NEVER NEVER EVER USE A STORE CARD TO MAKE A PURCHASE. THAT'S NEVER.
Become a Rate Tart - the new Masters
So far we have discussed how to avoid the negatives of Credit Cards - how not to be a servant. Now we can go on the offensive. Lets learn how to use the cards to our great advantage - lets become Rate Tarts - the Enemy doesn't like Rate Tarts - that's a good reason to become one!
If you are already carrying a large balance on a credit card, it will very likely be advantageous to you to transfer that balance to a new card. Many cards now offer a 0% rate on balance transfers for an initial 6, 9 or 12 months, sometimes even longer. There is usually a transfer fee of 2-3% for the privilege but it still means you're borrowing money extremely cheaply.
If you are trying to clear a balance, it's important to note that unless you are paying no interest at all, that balance will continue to rise even if you don't make new purchases. It will also take much longer to clear if you are paying only the minimum amount each month, as most or all of that payment will go towards interest charges. Paying a larger amount than the minimum each month will ensure that your debt is paid off more quickly and if you take advantage of the 0% introductory interest rate, your debt will reduce quicker still.
What do you do at the end of the interest free period? Transfer to another card and start another interest free period. That's what. Hence the term Rate Tart. You need have no loyalty towards your Credit Card provider, believe me, they have absolutely no loyalty towards you!
Make sure you allow enough time (say a month) at the end of your interest free period for your new provider to complete the paperwork for your new card and balance transfer.
So Lesson 5, the last lesson is
TAKE ADVANTAGE OF THE 0% BALANCE TRANSFERS BEING OFFERED BY MANY CREDIT CARD COMPANIES. DON'T BE AFRAID TO CHOP AND CHANGE. IT PAYS TO BE A TART. THE TARTS ARE THE NEW MASTERS.
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