It seems almost everyone has a credit card these days, whether it’s a prepaid credit card or the highly sought after American Express Centurion card the benefits to having a credit card of some sort are numerous. Whether it’s an easier way to pay the bills, track your expenses or pay for something you might not have the money for right now, credit cards can help out in a number of ways, as long as you are disciplined about using them correctly.
How Credit Cards Work
Credit cards can sometimes be confusing, so here is a quick explanation of how they work. You buy items with your credit card, but you don’t actually pay for the items with the card right there.
Later, you get the bill in the mail for the items you bought with the credit card. You have to pay off this bill within a certain amount of time, or you will get charged a late payment.
Late payments are the most common downfall of credit card users. People get in over their heads and cannot make the payments on their cards, getting further and further in debt.
Consequences from not making your payments on time can also include late fees, higher interest rates, and even a lower credit score. It is important that you read the fine print on the card you are using to make sure you understand what happens when you miss a payment.
Is a Credit Card Right For You?
Some people do not realize the damage that late payments can do to your credit score. If your late payment is more than 30 days overdue, this is when the payment begins to do the most serious damage to your credit score.
The lesson to be learned from this warning is that you should pay your bills on time every single time you receive a bill. If you cannot do this, then perhaps you should not be using a credit card or you should look into using a prepaid credit or prepaid debit card.
Credit card companies are required to send out bills at least 21 days before the payment is due. This protects the consumer so that they have sufficient time to pay the bill and get it returned to their lender.
Many companies offer the chance for people to pay their credit card bills online, which can be very efficient for some people. You should look into whether or not your credit card company offers the option to pay online, because many people have chosen to pay this way.
Card Hopping Can Be Dangerous
Another common mistake that people with credit cards make is trying to switch between different plans. This can sometimes be a good idea, and sometimes not.
Most people try to transfer their debt from a high-interest-rate card to a card with a low introductory rate. This means that, on the new card, you won’t have to pay as much back on your debt.
This seems all well and good, but what happens is that people switch over to the new card, and then they are not able to pay back their debt within the time period of the introductory phase. They usually end up paying back more in total than their original debt.
Switching to a different card with a different rate is only a good idea if you think you can pay back your debt within the short introductory period that only lasts for a certain period of time. If you want to see if you should switch over to a different card, you should look into exactly how long the introductory period lasts.
Don’t fall for the gimmicky sales pitch of a salesperson. They are just trying to get you to switch to a card that will help them make more money.
Make sure that you make decisions about your finances based on your needs, not a salesperson’s needs. As mentioned earlier, salespeople more often than not do not have your personal interests in mind.
When you are trying to decide whether you should switch cards, make sure you know if there are any transfer fees that will apply when you do end up switching cards. There are very few cards that offer a completely free transfer fee.
Watch Out For Minimum Payments
Another pitfall comes when people decide they are only going to pay the minimum payments required on their credit card bill. While this may make sense, and you will have extra money left over to buy clothes or shoes, this will probably not be the best choice for you in the long run.
If you only pay the minimum amount that you have to every month, you will rack up quite a bit of money in interest that you hadn’t planned on paying before. Pay more each month and you will pay more overall.