Credit cards are not at all the “evil” they are made out to be in the media. I like using credit cards and do so regularly. The problem is not in the credit cards themselves, but rather in how they are being used and misused. Lets consider the analogy of a knife – we all use it for cooking and it is a great implement. However some misuse it by using it as a weapon against others. The problem is not with the knife but rather its use. I see credit cards in the same way. They are very usefull providing you avoid making the following mistakes:
Choosing a card on anything other than cost
Credit card providers attempt to lure consumers into signing up for a card on the basis of various loyalty programs including frequent flyer points, shopping credits and membership in exclusive clubs. None of these should be considered in choosing a credit card – the only point for consideration is the annual cost of the card and it’s interest rate.
Choosing a card which does not offer 55 days interest free
The key advantage of a credit card is that it offers access to interest free advance from the card provider for the first 55 days from the date of a transaction. Some cards offer less than 55 days and other do not offer this at all. It is essential that your credit card offers an interest free period for as long as possible – this effectively is an offer of interest free finance for up to 55 days.
Not repaying outstanding balance in full monthly
Card providers will specify a “minimum” payment on their statement and “outstanding balance”. The later must be paid in full by the payment date specified on your statement. If you make a payment 1 day late or underpay the outstanding balance by $1 – the card provider will generally charge you interest for the whole month on the whole amount. Therefore credit cards are not for the disorganised consumer. To gain the maximum benefit of using a credit card you must repay the whole balance in full as stated in your monthly statement. If you do not trust yourself to do so you are best to avoid credit cards alltogether.
Using Credit Card for Cash withdrawals
This is a complete no-no as you will be charged interest on these withdrawals from day 1.
Rolling debt over to 0% card and make purchases on that card
0% credit cards are offered as a “carrot” to debt laiden consumers to move their card debt to a 0% rate card for 6-18 months. At the end of the 0% period the debt on the card will incur a much higher interest rate, possibly even higher than the one you are moving from. Do not make the move to another card provider unless youare doing so in order to pay dow your card debt. Never use the new card for new purchases – only use it to repay debt rolled over from another card. If you ignore this, your credit card debt will only escalate at the end of the interest free period.