subject: Are You Using Your Credit Card Correctly? [print this page] Currently there are around 610 million active credit cards held by American debtors, with an
average credit card obligation of over $16,000 per US family. Credit card revolving debt in
the us is approaching $800 billion and research is showing that consumers are
moving to credit cards once again after limiting credit card use during the last economic slowdown.
Despite these huge numbers and regardless of the reality that the typical household has 3.5 active
credit card accounts, it is amazing how little most people understand credit cards, the
costs and service fees involved and just how high-priced they will be as a line of credit. Utilized
correctly, credit cards can be excellent tools to assist you when traveling, going shopping or needing
an additional warranty on a large purchase. Should you use your credit cards as sources of
ready-cash or pay merely the minimum payments, credit cards are very expensive.
The interest rates charged by the credit card provider can vary greatly and will increase as federal
interest rates change. Even though the Credit Card Act of 2009 applied some constraints on
card companies, mainly on fixed rate cards, most credit cards have variable interest
rates and these rates are not ruled by the Credit Card Act. Although having a 10%
interest rate on your bank card may not seem to be too bad instead of the 5% rate you
initially had, that change doubles the sum of interest that you will pay on your
account balance. Virtually every credit card has a higher interest rate for cash advance,
generally beginning at 20%, far more expensive than any personal loan rate marketed by a bank.
Unexpected fees can be another source of cost for the card holder and many people
do not know why fees are added or how much they are. Nearly every card imposes a late
payment fee, typically around $35, that is added automatically if your check is posted
one or more days after the due date. Going over your credit limit will carry a fee
(regardless that the permission to exceed your credit limit was given by the firm
that happen to be receiving that fee) and remaining above your credit limit will also add a fee.
Shifting a debt from another account will add a fee and some card issuers are
billing fees for paper monthly statements. Fees are responsible for over 75% of the
profits earned by credit card issuers, so the odds of fees being decreased or
eliminated are slim.
Credit Cards As Lines Of Credit
Making the bare minimum monthly payment is the outcome hoped for by most credit card providers.
This very low, seemingly innocent payment is actually created to keep you spending money on on that
account for as many as 12 years with the interest payments totaling 300-400% of the first
purchase price. Just as compound interest is a benefit to savings, having to pay interest on
interest is a compounding aspect in favor of the credit card companies. Instead of
paying only the minimal payment, it's in your best interest to pay as much as you can
each month. Even doubling the minimum payment will reduce your payoff period to around 3
years and greatly reduce your principal balance faster.
Credit cards are convenient, simple to use and available to almost everyone, even people
with awful credit. When they are used correctly, credit cards are wonderful financial tools
that assist individuals in everyday situations. However, if you don't pay attention to what
you're using your cards for and don't pay down your balances quickly, you can find
yourself in a financial spin that can be expensive. It's up to you to make sure that
credit cards, used properly, are your best lines of credit.
