Using Credit Cards
Credit Cards are a great concept but they end up bringing financial ruin to
many people because they do not use them properly. Too many people get a credit card and then find that it is maxed out within twelve months. Then for the rest of its existence they end up paying off interest and barely making a dent in the principal. This is not a good way to manage your money.
Let’s go over some of the benefits credit cards offer before we get into their detriments.
A credit card can be a great
convenience and provides the
safety of not dealing with cash,
which is more easily lost.
Credit cards are also very
useful in the sense that they
offer protection under the
Consumer Credit Act and you can
often get your money back in a
fraudulent purchase that you
would be unable to do with any
other payment method.
Credit cards also offer
“incentive” benefits such as air
miles or credit toward future
purchases. Credit
cards also give back a
percentage of your purchases to
approved charities in some cases
which is a really nice way to
give back at the same time you
are spending the money you
normally would spend.
Therefore there are most
certainly benefits for using a
credit card.
Given all of the above, credit cards still cause problems for most people more often than they provide benefits.
Most of these problems come in
the form of excess consumer
debt, which arises when one
carries a balance on the credit
card while paying the absolute
minimum each month. These
problems occur when one begins
looking at the credit line of
your credit card as simply bonus
money that you now have to
spend. Instead you
need to allocate existing funds
for every purchase you make on a
credit card. This
way you know that you will be
paying off that principal
balance at the first of next
month rather than carrying for
your foreseeable future.
Another
problem that happens with credit
cards is that people simply get
too many of them. With the
credit environment as it is
today most people are barraged
with new credit card offers
practically every day of the
week. And some people
accept each one of those offers
and end up with more credit
cards than they know what to do
with. With increased
numbers comes increased
temptation. When you have
a multitude of credit cards it
becomes much easier to talk
yourself into carrying a balance
on one of them. This is
not a good idea, as discussed
earlier.
You also need to be wary of signing up for credit cards. While, most are legal,
some companies are really towing
the line between ‘legal’ and
‘not legal’. Watch
out for companies who charge a
“membership fee” or have a
substantial charge for late
fees.
So what is the correct way of approaching and dealing with credit cards?
Rule #1 – Never use credit cards as extra money.
Always allocate money from your
current funds or monthly income
in order to pay whatever you
finance off immediately.
Rule #2 – Read the fine print. Too many people simply accept the offers sent to them
in the mail without reading the details of the interest rate and credit terms. While it may seem insignificant on first look over time it can create a negative financial situation for you very easily. Read the print and make sure you get the best terms available.
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more information on credit card debt
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