Credit Cards: Keeping Out Of Trouble
Credit cards have great utility. Used wisely, credit cards help you accomplish many things, including the very important task of managing your cash flow. Used without care, credit cards can place you into a deep debt that will you will battle to pay off over years.
Debt does not stay as just a money issue but can rip lives apart. At its worst, the pressure of debt could expose personal and family relationships to enormous stress. So you don’t hit that point it’s worth considering how to use credit cards responsibly. Cherish credit cards for the convenience they can provide, but do not allow yourself to get carried away. Here are some ideas.
• Avoid making minimum payments. If you can afford it, pay off the balance due each month in full. This is the best way to minimise interest charges. Even if you can’t pay it off in full you should try and pay as much beyond the minimum as you can afford. Credit cards set their minimum payment at only 1.5 to 3 percent of the balance you have outstanding. At say 2.5 per cent, this only works out to you needing to pay $25 for each $1000 outstanding. Even if you were repaying with no interest or fees it would still take over three years to pay off the principal balance. When you include interest (average APR is 16 per cent) and fees, why, you would need at least 11 years to clear the $1000 debt. To figure out exactly how much more rapidly you could reduce your own debts by raising your repayments search online for a ‘debt repayment calculator’ and see how the interest paid drops.
• Arrange for a lower credit limit. The credit limit allowed on credit cards is not meant to be taken as an obligation to spend that much. These invites are like an invite to place yourself into debt, take a stand and call your card issuer and request a lower limit that you know you can control. Set it at a level that you can comfortably repay.
• Avoid making late payments. If you miss the due date for the statement then you can be hit with late payment fees which can be very high as well as extra interest. The expense is totally avoidable on your part. It also adds to your outstanding balance.
• Pay early. Aside from protecting you against late-payment fees, this works to your benefit if you usually carry a balance. Most credit cards use the average daily balance method to calculate interest. By pay money off earlier in the month you will lower your outstanding balance throughout the month and cut back on the interest due.
• Monitor your spending. All credit cards provide online services. You can use these to check how much you have spent during the month and the amount that will be included in your statement for the month. This gives you enough time to prepare for the payment when it comes due.
• Stay away from cash advances. If you are making cash advances from credit cards more frequently, you really need to review your budget. Cash advances are expensive. Many issuers charge around 3% of the withdrawal as a instant transaction fee. There is no interest-free period on cash advances and the interest rate is often higher than that for purchases.
• Choose the best credit cards for your needs. Your credit cards should suit your spending habits. If you normally pay off your balance in full each month (called a “transactor” in the industry), the interest rate on your credit cards won’t matter at all; instead you’ll want longer interest-free periods and probably a rewards program. If you don’t typically pay your bill in full each month then a card with low interest rates will be critical. Don’t fool yourself, if you know you always carry a balance then admit it and choose a card that suits that habit.
Make sure you are the one in control of your credit cards. They can be very handy tools in achieving some of your goals.
Article by Richard Greenwood of Singapore credit cards website creditcardapr.com.sg.