Can you ever imagine living without a credit card? After all of the things that you read and hear on the news, you may be hesitant to apply for one. While some financial experts and those who are struggling with credit card debt will say that you may be better off without cards, there are some benefits to it.
Do not mistake this article as a promotion for these cards. We acknowledge that it has all the potential to bury you in debt. However, you cannot ignore the fact that some people own credit cards and yet have stayed debt free for many years. The key is to know and use your cards wisely so you will not end up with too much debt.
Finding the right credit card for your spending style
Let us begin with your choice of credit cards. There are so many credit card companies offering various perks and you can compare them with each other before you decide. CreditCards.com can give you a comprehensive analysis of your financial profile to match you with the right card.
One way to choose a card is to determine your spending style. Here are some considerations when choosing the right card.
Determine how much you plan to spend on your cards.
Plan how you intend on paying back what you purchased.
Identify the type of things that you will use your credit cards on.
Let us cite some scenarios that will help you understand how a specific spending style will determine the right kind of credit card.
If you are young, you are probably new to credit cards. That also means you do not have much money to spend – which is why credit cards may be very appealing. You don’t want to give in to too much spending temptation so to protect yourself, the perfect account for you will be a low interest card with a low credit limit. That will keep you from spending too much and having your debts overrun your monthly payments.
If you are middle aged and you have a stable career, you should already have a decent credit report to your name. Your spending should be more mature and you are at a stage in your life that you are thinking about improving your lifestyle. Your target card should be one with a high credit limit and a low interest rate.
If you travel a lot (either for work or your personal convenience), you want to look for a card with a high rewards program. You want to enjoy the perks of using your card and this can be given a boost by your card’s reward program. This is also the perfect card for those who love to take advantage of holiday shopping promotions since reward cards are given added discount during these times.
Understanding credit card interest rates and other fees
As soon as you know the type of card that you will keep with you, it is important that you understand what all your interest and other fees mean. You may be surprised that some card holders are actually unaware of these terms. If you are one of them, this is a great chance for you to expand your credit card knowledge. All of these additional fees end up as your creditor’s profit so you can expect that they will not volunteer to tell you how to eliminate them.
The most important concept in these cards is your interest rate. It is also referred to as your APR or Annual Percentage Rate. These rates change over time and without reason. However, you can be assured that credit card companies will inform their clients prior to implementation. At least if they do not want to be in violation of the Credit Card Act.
When there is a balance carried over to the next month from your previous, an interest amount will be added to your minimum payment. The interest amount will depend on the nominal rate (anything in between between 12.99% and 29.99%) and your current balance. So the higher your balance, the higher the interest amount you will pay for that month.
Your card also has a lot of other fees that will help grow the profits of your creditor. To give you an idea, here are the fees that may be implemented in your account.
Annual fee. This is the yearly fee that creditors charge clients for using their card.
Set-up fee. This is sometimes known as the application or processing fee. Usually, this is below 25% of your credit limit.
Cash advance fee. In case you want to withdraw cash using your card, this is the charge that is imposed on you. Be warned that this is higher than the usual purchase rates of credit cards.
Over the credit limit fee. This is the fee when you go over your credit limit.
Balance transfer fee. This is the charge when you want to transfer the balance of your high interest cards to this particular account.
Late penalty fee. When you missed your due date or you deliberately stopped paying your card, this will be added to your balance.
Returned check fee. This is for those who paid their balance with a check that does not have sufficient funding.
The key to using your credit card without incurring interest is to understand the grace period and the billing cycle of your debts.
The grace period begins when you make the purchase and your next due date. If you pay within this time, you only get to spend on the actual amount that you charged on your card. There will be no interest rate added to it.
It literally pays to know how your credit card functions. A great resource website that we will refer you to is the FederalReserve.gov. They have a rich resource of articles and information about credit cards and it’s proper use.