No doubt you have received numerous solicitations for credit cards in the mail, maybe some of them even ‘pre-approved’. What does all this mean and how do I choose the right credit card?
Credit cards are a very easy and simple way to buy things on credit. Maybe this month you are short on money or you want to buy something that you would like to pay off in instalments? For this kind of short-term borrowing, a credit card is the perfect vehicle.
However, where people start getting into trouble is when they start using the credit card as a cash point or ATM card and start carrying long-term balances on them. This kind of credit card usage quickly becomes unsustainable and very expensive. The first lesson to choosing a credit card is learning to use the card wisely.
Always know what your own financial limit is and not the limit of the card. Think whether you really need that item you want to buy – is it a necessity? Perhaps it can wait until you have saved up the money or you get a bonus at work? How does your credit card spending tally with your other monthly expenses? These are all important factors to keep in mind when using a credit card.
There are so many credit card deals out there, which one is the best for you? For one, always read the fine print on the credit card brochures. This alone can save you a bundle of money. Some cards come with enticing, 0% interest, but obviously that is only for a limited time – otherwise the credit card company wouldn’t be making any money. Find out when this promotion ends and what the interest rate will be after the promotion.
Many cards have hidden costs. For example, if you get a cash advance, many credit card companies will charge a fee based on a percentage of the cash you withdraw. How about penalties, if you happen to miss a payment or go over your limit, what will you be charged? Another pitfall is the annual fee. There are so many credit cards out there that have competitive benefits that do not carry an annual fee – so why pay an annual fee? Look into all these factors before you commit to a credit card.
In the end, it is important to keep in mind that using a credit card and carrying a balance on it is a form of borrowing and can adversely affect your creditworthiness, if abused.