Credit cards are so popular nowadays and it's not hard to see why. They are safe to use on the Internet and they make life a little easier while we are waiting for payday to come around. However, using a credit card is can be financially dangerous if you don't know what you are doing. Here are 5 tips for beginner credit card users to help you use your card responsibly and avoid getting into debt.
1) Budgeting
Understand the importance of sticking to a reasonable budget. Yes, it's tempting to decide that you can over-spend this month and under-spend next month to make up for it. But this is a dangerous trap to fall into. Make sure your budget is something you can afford to pay off every month. You should think of your credit card the same as you would think of cash; you cannot spend more than you have available.
A great way to keep track of how much you are spending is to link you credit card up with your cell phone; you will receive text messages informing you of your usage.
2) Monthly Payments
When you receive your statement each month, it is so easy to be tempted by the minimum payment option. This states a small amount that you must pay off each month and the rest will roll-over until next month. Do not get sucked in to this. Always pay the full amount on time every month. By sticking to the minimum payment option, you are putting yourself in a dangerous position of allowing debt to accumulate, and interest rates will begin to increase.
Your statement will inform you of your payment due date. If you don't pay on time, you will be charged with a late payment fee. This is how credit card companies make their money.
3) Internet Banking
Nowadays, credit cards come with the option of Internet banking. This is an excellent and free way to make sure you aren't over-spending because you can log in and check your usage anytime. Additionally, by linking your credit card with your bank account, you can use Internet banking to pay off your credit card fees from the comfort of your own home. Paying in cash at the bank usually comes with a small charge, whilst banking online is free. If you are sick or busy, you don't have to go to the bank; you can simply log on and make the transfer.
4) Credit Rating Awareness
Every time you use your card, be aware that you are building a credit rating, which will come in handy later in life when you are looking to mortgage a house or get a loan. Missed payments, late payments, and accumulation of debt will all damage your credit score and will be visible on your credit report. Often, a bad credit rating means that you will be rejected for a loan or mortgage, or offered it at high interest rates. On the other hand, if you consistently pay in full every month and stick to a reasonable budget, you will be building a positive credit rating that will support your applications for a mortgage at a low interest rate.
5) Cash Advances
You might think it is harmless to use your credit card to withdraw cash from an ATM. However, this is considered a cash advance, which is subject to much higher interest rates than other transactions. Plus, you will be charged a transaction fee for such usage. Unlike other transactions, there is no safe period in which you are free from repayments until a certain date each month; instead, the interest on cash advances begins to accumulate immediately and continues to build until you have made the repayment. Cash advances are designed for emergency use only.
Having a credit card can be a very positive thing if you use it correctly. Having a good credit rating can become invaluable later in life. However, it is so easy to slip into bad credit habits, such as opting for minimum payments, paying late, using cash advances, and over-spending. Constantly be aware the money you spend is not free; you are responsible for paying off anything you spend by a certain date each month.
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