Credit cards are convenient, but dangerous when overused. After all, they are nothing more than another form of borrowing. Just because the card is plastic doesn’t make it any less of a financial liability.
Like most things… moderation should apply. Unfortunately, for most people it doesn’t work that way. Maxing out a credit card is pretty common these days.
The Annual Percentage Rate (APR) is a primary indicator for the cost of credit and is expressed as a yearly rate. It must be disclosed before you accept any obligation for payment.
The card issuer also must disclose the periodic rate. This rate is applied to your outstanding balance to determine the finance charge for each billing period.
Some credit card deals permit the issuer to change the APR when interest rates change. Make sure you understand how these variable rates work before you become obligated.
A grace period lets you avoid finance charges by paying your balance in full before the due date. Knowing whether a credit card gives you this option is important if you plan to pay your account in full each month. This is especially true if you plan to transfer an account balance from an old card onto a new one.
Try to avoid those sneaky little charges (actually they’re not so little anymore) for such things as cash advance, late payment or exceeding your credit limit.
Recent legislation was supposed to make everything more user friendly, but like most government intervention it did exactly the opposite of what it was intended to do… help the consumer.
And, here’s an interesting twist… some companies even charge you for not using your card. For example, when your account has been dormant for a certain period of time.
Don’t be lazy… read the fine print and, if you don’t understand how your balance is calculated, ask the card issuer. A written explanation about your credit cards must also appear on your billing statement.
Personal finance management is challenging. Don’t make it more difficult by abusing the real intent of using credit cards… namely convenience.
