Credit card, if used properly, is beneficial for protecting purchases, building credit and buying expensive items without the need of carrying cash. However, if used improperly, the credit card can start functioning as an interest loan for the user. Many people claim that the more the debt increases, the more unlikely it becomes to get rid of it. Small monthly payments and a high interest rate are the key factors that keep consumers in debt for many years.
This article will guide you on the do’s and don’ts of a credit card to help you use it wisely.
Do’s of a Credit Card – Create a Budget
Yes, there is a limit on the amount you can spend with a credit card. Make your budget on how much you can spend depending on the sum of money you have in your bank account.
Pay the Full Balance Each Month
Interest charges can only be avoided if you pay the balance completely each month. Hence, before buying anything, ask yourself if you can pay off the entire credit card balance before the due date.
Pay on Time
Whenever a consumer pays after the deadline, in addition to the late fees, an increased interest rate i.e. the default rate may apply. Default rates are double the standard tariffs.
Restrict the Number of Credit Cards
Many people think the greater the number of credit cards, the more they can spend. However, the fact is that the higher the number of credit cards, the more difficult it is to keep track of transactions and payments. Usually, two credit cards are more than enough for one individual. Therefor it is a good idea to consolidate credit card debt before things get out of hand.
Keep a Record of Your Purchases
With increased online fraud, it is important to go thoroughly through your credit card bill to protect yourself against any kinds of errors. Compare receipts with the credit card statement to ensure you are not paying for mistaken charges.
Understand Credit Card Terms
Carefully go through your credit card agreement and understand all the terms and conditions mentioned. If you know what they mean, then you will have a sound knowledge of how using your credit card can cost you more.
Don’ts of a Credit Card — Balance Transfers
Do not transfer the balance to another credit card until there is a pretty good reason for that like taking advantage of lower interest rate. Otherwise, the credit card limit will increase due to the balance transfer fee.
It is one of the worst ways to use a credit card. If you need to get cash through your credit card, there is something wrong with your budget. A cash advance is the beginning of a credit card debt as it will result in a higher interest rate, transaction fee, and no grace period.
Purchasing Special Services
Many credit card companies offer different services like life insurance or protection against credit card fraud. Do not purchase such services because they are unnecessary and often overpriced.