HOW TO USE A CREDIT CARD GUIDE |
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Make no mistake,
credit cards can be dangerous if you don't know how to use them properly. Here
in the UK, consumer debt has grown rapidly, doubling in the last four years alone.
Many of us find it all too easy to build up credit card debt we can't afford.
The interest rates
charged on credit cards are relatively expensive compared to other forms of debt,
such as a mortgage. This means that they aren't the most cost-effective method
of carrying debt on an ongoing basis. If you are one of those people who permanently
carries a heavy balance, then a visit to our Get Out of Debt centre is probably
in order.
Pay
Them Off Each Month
The best way to
use a credit card is as a cash flow tool. By this we mean pay off the balance
in full each and every month but take advantage of the interest-free period offered.
Of course not everyone can always manage to do this and because you don't have
to pay the credit card bill, unlike your mortgage or utility bills, it's tempting
to miss the odd month.
But remember credit
card debt is expensive (did we mention that before?). It's far better to forgo
the odd luxury every now and again than to take the easy 'minimum payment' option.
Credit card debt does not go away. Left untouched it's get bigger and nastier
each month so think of it like weeding the garden. Nip the problem in the bud
before it gets out of control.
Review Your
Statements
It's a chore we
know but you should check your statement every month to make sure you aren't being
charged for something you shouldn't be. Mistakes do happen occasionally, even
with the best computer systems. If you do find a mistake contact your credit card
company immediately and they should be able to rectify it.
Also make sure
you keep one eye on what rate of interest your card is charging. Although the
rate may have been competitive when you first got it there are no guarantees that
it will remain so. Often attractive rates are offered on newly launched cards
in order to attract business but are then slowly raised over time relying on the
fact that many of us can't be bothered to switch.
Credit Limit
Does Not Mean Free Money
One of the most
common mistakes made with credit cards is thinking that the credit limit represents
free money. IT DOES NOT! There are many examples of people who have sensibly collected
all their debts in one cheap, manageable loan and then promptly gone and 'maxxed
out' their plastic a few weeks later thinking they are free to spend again. This
is cardinal sin number one as far as credit card debt is concerned.
If you spend a
lot on your credit cards you will often find that your provider will raise your
credit limit, often on a fairly regular basis. Many people seem to treat an increased
credit limit as a personal spending challenge. Don't make the same mistake.
Multiple Credit
Cards
You might be forgiven
for thinking that credit cards breed inside your wallet or purse when you aren't
looking. Not only that but a large proportion of junk mail seems to consist of
offers of yet more plastic. But the fewer cards you have the better. A fistful
of different credit cards, sprinkled with the odd devilish store card, is usually
a clear sign that your money management skills are sorely lacking.
More cards mean
that it is harder to keep track of how much you have spent and, more importantly,
how much you owe. It also makes it easier to forget or decide not to pay one or
more off each month. It is far better to have one credit card, offering a competitive
rate.
Credit Scoring
Whilst it's tempting
to hop from one cheap credit card to another, such a tactic could have a hidden
side effect. When you make an application for credit a note to this effect appears
on your credit record even if you later decide to cancel your application. Too
many applications and the credit card company who's checking you out might think
you're a high risk customer. This article has more details on how credit scoring
works.
Credit
card guide...
How to choose a credit card guide...
How to use a credit card guide...
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