Credit Card Dos and Don'ts

by Bob Jones

Ask yourself: does the credit card work for you or do you work for your credit card? Most people's answer to that question will depend on how they use their "plastic friend" as credit cards are often known. As many people with burned fingers will tell you, they didn't realize that things had gotten so bad until too late, because most credit card offers try so much to sound like they are actually running a charity. Well, they aren't.

However, this is not an anti credit card campaign. They have their uses - in the USA, for example, if you want to rent a car, you must have a (major) credit card. But, think about this situation:

You get an offer in the mail that sounds great, maybe it's a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit, so you go out and purchase the item right away. Often, this is how your repayment schedule will work out. Most credit cards charge a minimum percentage of the total balance (typically 2 percent) per month. Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only $10 will come off the $2,000!

Does that sound worrying? Well, it doesn't have to. The moral of the illustration is to use the credit card very, very carefully.

Credit Cards Dos and Don'ts

There is a great deal of truth in the advice that credit cards are not a substitute for not having money. Every time you use a credit card this should be the theme song playing in your head. Moreover, you would be wise to remember the following as well:

Dos.

1] Always plan for the purchases that you have to have and those that you just want. You need the essentials, but you only want everything else. The ability to defferentiate between the two might assist you plan more sensibly.

2] If you are caught up in financial difficulties, it's always a good idea to talk to the credit card supplier who might adjust your repayments. If you just default, that only builds up a bad credit history for you and you could find yourself being refused credit in the future.

4] If your mailbox is full of information on credit cards with more favourable deals than you currently are enjoying, you could approach your issuer for a better deal. They want to retain you as their customer, so they will listen.

Dont's

1] Do not use your credit card to purchase household goods. It is too expensive in the long term.

2] Do not only pay the minimum amount necessary. You will end up paying exorbitant amounts of interest. The more quickly you are able to pay off the debt the better.

3] Never use the credit card to buy things you can't afford without the credit card.