Credit cards are necessary to help you establish credit so you can get future loans like car loans and mortgages. However, the problem with credit cards is that you can cause a lot of financial damage to yourself if you are not careful with credit cards and you do not learn how to properly manage them.
Instant Gratification
The problem with credit cards is that they send out the wrong message as they sell people on “buy now, pay later.” You have to be careful with credit cards as the interest rates can make it difficult to re-pay the money that you borrow and you may find that before you know it you are in debt up to your ears and living paycheck to paycheck. It can take years for people to pay off credit cards and it can really delay your future plans like buying a home. The average American is carrying around close to $9,000 in credit card debt.
Fees
Credit cards always come with a handful of fees that you need to watch out for. There are fees for not paying on time, fees for going over the limit, fees just for opening the account, balance transfer fees, and cash advance fees. All of these fees are added to the interest rate that you are already paying on the card. When you are looking for a credit card seek out one that doesn’t have an annual fee and look for one that doesn’t come with all these other fees just for having a credit card.
Budget Correctly
If you are planning to use a credit card for a large purchase like an LCD TV, make sure you can pay off the credit card in a timely manner. Your credit score will take a big hit if you are not paying off the balance quickly. It is a smart idea to keep the balance less than 30% of the total limit available and to try and pay off the entire balance each month. Watch out for impulse spending with credit cards as it is easy to get into trouble quickly when you start swiping your credit card. Try to only have one or two credit cards. Do not open several accounts, it hurts your credit and it usually gets you into financial trouble as you can easily max them out.
Interest Rates
Watch out for interest rates on the credit cards. Most credit card companies will try to lure you in with a 0% interest rate, but that ends in about 6-12 months and soon you are stuck with a high interest rate. Check your credit rating to see if you are high risk or not as this helps you to know why you are paying higher interest rates and if you need to cancel a credit card because you are being unfairly treated.
Timely Payments
The best way to prove that you can handle a credit card is to pay off the balance or to keep the balance low and make your payments on time. Try to pay ahead of the due date instead of waiting until the payment is due. This will improve your credit history with the credit card company and will demonstrate strong financial control and worthiness to other lenders.
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