It is difficult to imagine trying to live without the convenience of credit cards. Yet many get into financial trouble in part due to their misuse of credit cards. By following a few simple rules you can avoid the missteps and use credit cards to improve you personal finances instead of falling into the credit card traps.
|Example of why customer service is important - Incredibly Bad Customer Service from Discover Card. Claims made to convince you to use a card don't mean much if the company doesn't respond appropriately to customers.|
First, don't use your credit card for loans. Pay off your balance each month. Pretty obvious advice but way way too many people don't follow it. If you use your credit card for a loans - 98% of the time that is a mistake and big risk to your personal financial future. Don't do it. There is a reason pretty much all the advice from financial advisers on credit cards starts with this - it is the most important advice.
Second, if you don't follow the advice above pay off your loan as soon as possible. Payment the minimum payment is huge mistake. You should not be making any discretionary purchases if you are not paying down your credit card debt substantially each month.
Third, pay your credit card bill in full each month on time. The huge fees credit card companies charge if you are late should be avoided. I will admit I have slipped up occasionally but take great care to avoid paying you hard earned money in exorbitant fees.
Fourth, if following the advice above (which you should be) get a card that pays you for all your purchases. Straight cash is simplest and usually best but if you really want to take the time and effort to try and get more advantage through the use of airline miles or some such other gimmick go ahead.
Fifth, ask for reduced fees and interest rates (which you shouldn't have to worry about since you shouldn't use the credit card for loans but if you do...). The credit card companies make a great deal off the use of credit cards and the cost of acquiring new customers is high so they are most often willing to negotiate. If you miss a payment or make the payment late (by mistake, once or very occasionally) ask for a reduction in the fee. The fees are far too high and just by calling you can likely get a reduction in the fee.
Sixth, setup an automatic withdrawal of your monthly payment (the full payment) from your checking account. Of course you need to be sure you have the funds to cover these payments in full or you may incur fees not only for your credit card but from your bank. Many banks (and credit unions) will allow you to pre-arrange to have checks or deductions covered by the bank in the event you don't have the funds in your account though their may be a fee if they cover a payment for you.
Seventh, if you follow the advice above credit cards are a useful tool. You get to buy items and don't have to pay for them for a month or so (while you can be earning money on you money in a savings account or money market account). And since you are getting paid for a portion of your purchases you not only get a free loan for a month but get paid for the privilege.
If you don't follow the first piece of advice though you need to look at low interest rates over being paid - but don't go down that path.
Related tip: create a emergency cash reserve. Until you have built up a cash reserve of 3 month of living expense you should not be making many discretionary purchases. Once you have 3 months saved away then continue to build that to 6 months (but during that time feel free to spend some of your earnings on discretionary items).
Without the cash reserve it is too easy for anyone to take a financial hit and before you have a chance to get back on your feet be severely punished. Credit card companies take advantage of those that don't plan ahead: Don't Let the Credit Card Companies Play You for a Fool. And as soon as you slip huge fees, penalties and interest charges will start and you may have trouble getting out of the cycle of huge fees and interest. It is best to avoid every getting into that cycle.
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