The Wise Use of Credit Cards

Credit CardsThere is much that has been written about credit cards especially pointing out on its negative aspects. What most people don’t know is that it is possible to have a credit card and have a healthy financial life. Credit cards allow the consumer to purchase goods and pay for them later. The card allows a continuing debt balance provided interest is charged. Some of the benefits of having a credit card are the convenience it affords the user, benefit packages like insurance cover for goods purchased above a certain amount. Also credit card users are enrolled in loyalty programs like reward points where such points can be redeemed for cash or products. It is good to note that many people have been ruined financially by credit cards. This article seeks to guide credit card users on how they can use the cards wisely.

Before applying for a credit card, assess your need for it. What do you intend to use the card for is it for travelling, paying for products online etc. If you have problem with debts, don’t go for a credit card. If you are not disciplined in your spending by having a budget to guide you, the credit card will most probably ruin you. It is good to note that the bank will recover interest for money spent using the card provided the debt balance rolls over to another month. Also you will find the interest rates charged on credit cards are higher than those charged on other forms of credit.

Once you have ascertained your need for a credit card, shop around for one that charges low interest rate and has reasonable rewards and benefits. Read the terms and conditions on the form before signing up. In case of clauses that are not clear, seek clarification from your banker or from Your Personal Financial Mentor. Get to know how long is the grace period (it is usually 1 month) and when does your billing cycle start. With this information, you will be able to make prompt payment.

While getting the credit card, one of the advantages that bankers flaunt is that you don’t have to pay the total amount of what you have spent. You only need to pay the minimum amount to continue using the card. Avoid this pitfall because with the revolving balance, the debt will grow to uncontrollable levels. Aim to pay for 100% of what you have spent or at least 50%.

When using the credit cards differentiate needs from wants. Only use your cards for what you need to avoid accumulating unnecessary debt. If you are an impulse buyer avoid the card completely.

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June 19, 2013 The Wise Use of Credit Cards