Credit cards are financial tools that can save you money or completely ruin your finances, depending on how you use them. One of the biggest money mistakes you can make is to use a credit card without really understanding how it works. I’ll tell you what you need to know so you never allow a credit card to get the best of your personal finances.
Opening and using a credit card provides a simple way to establish and build credit history. Yes, certain credit cards can earn users rewards for cash back, travel miles, and redemption points, but the road to reward chasing is littered with people who slipped into credit card debt. Beware of your budget and your personality if you elect to pursue the path of reward chasing.
If you have trouble paying bills on time, saying no to purchases you can’t afford or just sense a credit card may not be a good idea for you – then trust your gut. While a credit card is a great tool to build financial health, it can also lead to painful consumer debt when used improperly.
Still think you’re ready to take on the responsibility of owning a credit card? Then let’s walk through how to select, understand, apply and manage your credit card.
Put simply, credit is borrowing money, and paying it back later, usually monthly. Everything you borrow shows on your credit file. This section shows you how to build and look after your credit score.Before you even apply for credit, there’s lots of stuff to think about.
Start by finding the right credit card for you, and learn what an eligibility check and representative example are.Once you’re up and running, it’s really important to manage your credit properly.
Find out how we work out your minimum payments, how to make your payment every month, and what happens when you clear your balance.It’s important you use credit correctly and manage your borrowing responsibly. We’ll tell you how, and explain what to do if you need help or your circumstances change.
There are various ways in which the payment on a credit card can be made. One is to make the full payment by the due date, which will not invite any interest charges. The option is to pay only a part of the amount and pay interest on the remaining portion till it is repaid. And now there is another choice, of paying in equated monthly instalments (EMI) which can be easily calculated online since the advent of some popular emi calculators availaible online. This gives rise to a situation where the amount is paid off in parts, just like a loan. Just to give a very simple example, if there is an outstanding amount of Rs 7,200, then this might be converted into payments of Rs 1,200 for six months.
What is a Credit Card?
I’m sure you already know that a credit card is a financial product issued by banks and other financial institutions that allows you to make purchases, take cash advances, and transfer balances from other accounts. I’ll tell you more about balance transfer cards in just a moment.
When you’re approved for a credit card, you’re given a line of credit, which is typically the maximum balance you can accumulate on the card.
Many people use the terms “credit card” and “charge card” interchangeably, but they’re not the same. A charge card requires you to pay off your balance in full each month. A credit card allows you to carry a balance indefinitely as long you make the minimum monthly payments.
Credit Card Debt
Most of us are familiar with credit cards. As mentioned earlier, U.S. statistics show the average family has $5,700 in credit card debt. In fact, credit card debt accounts for a very sizeable chunk of total consumer debt, which hit has an estimated $762 billion.
Clearly credit cards are an important part of our day-to-day lives,
which is why it's important for consumers to understand the effect of
that interest on them. Before you get rid of your debt, you need to know how credit card debt
works. Each month, you receive a credit card statement detailing the
retailers and prices of your purchases. Depending on your credit card,
you generally have between 21 and 25 days from the date you receive the
monthly statement to the due date.If you’re dealing with credit card
debt, you can eradicate it faster by paying it off in order of interest
rate. And you can decrease the amount of interest you’ll have to pay by
lowering the amount of debt outstanding or lowering the interest rate. .
By learning how to shop for a credit card and what are the benefits --and drawbacks -- of different ones, and most importantly how to consolidate credit card debt you'll be able to find the best deal. In this chapter, you can use our credit card search engine to begin your search. Then consider your lifestyle and your paying habits to figure out what type of card you need.
What can you expect to learn from this chapter:
- Finding the card for your lifestyle
There are many different cards to choose from, and using our credit card search engine can help you find the best one for you.
- Key questions to ask before signing up
This list will guide you to choose the right card in the beginning -- so there are no surprises in the end.
- How do you plan to pay?
The balance on your card is calculated in different ways, and how you plan to pay that balance will determine what type of card you should get.
- Read the fine print
APR, payment allocation, grace period -- these are some of the very important things you will find buried in the fine print.