Week 6: Using Credit Cards Wisely
Money Smart Challenge
Money Smart Weekly Conversation Fact: Did you know that you are charged interest from the day you take a cash advance on your credit card until you repay the entire amount?
Credit cards can be useful and convenient. But if you aren’t careful about how you use them, you can put yourself on a path to serious financial trouble. You could build up debt that might take you years to pay off or damage your credit rating.
Before applying for a credit card, know what you’re getting into. When you sign up for a credit card, you are entering into a legally binding contract, so it’s important that you understand the terms and conditions.
READ THE SMALL PRINT.
Do you ever wonder how people without credit card debt do it? How do they use credit cards but not end up in debt?
Most people, once they start using a credit card, find it hard to imagine their life without at least one. Credit cards are convenient, they let you accumulate reward points for trips or merchandise, they even help you avoid service charges in your bank account because you don’t debit or withdraw cash as often.
However, if you’re not careful, your flexible friend can quickly become a foe. When your bank account is running near empty, paying for items you need or want with a credit card can amount to a lot of debt.
14 Tips on How To Use a Credit Card Wisely and Not End Up in Debt
1. Save Up for Purchases
Use your savings account to first save up for purchases, and don’t “just go shopping” with your credit card. If you don’t have it with you, you won’t be tempted to spend impulsively. Use the credit card to make planned purchases and then pay them off as soon as the bill arrives. You’ll have the money saved, so it’ll be easy to do!
Add a credit card sticker to your credit card to remind you of your savings goal. Drop by our office, #7, 5000-51 avenue, Camrose, to pick one up or request one to be mailed to you by emailing email@example.com
2. Aim to pay off your balance in full by the due date every month.
Paying the balance in full every month will show other lenders that you are a responsible borrower. On the other hand, if you make payments late or miss them entirely, you hurt your credit score.
Carrying a balance means that everything you charge to your credit card actually costs you more than the purchase price, because you are paying interest. For example, if you buy a new flat screen TV for $1,000 and pay only the minimum each month, it will take you almost 11 years to pay it off in full and it will have cost you $1,989 ($989 in interest)—almost twice the actual price of the TV.
3. Keep your card, your PIN, and your security code secure.
If you share your PIN or security code, you risk being held financially responsible for unauthorized transactions.
4 . Prepay Your Credit Card With Every Pay Cheque
Once you know what you spend each month on an anticipated expense, pay that set amount to your credit card when you get your pay cheque.
For example, you budget about $200 each month for eating out. Pay $100 from each pay cheque (if you are paid bi-weekly) to your credit card so that you don’t spend the money on something else in error. This helps you to follow through with your budget, build a positive credit rating and only have a very small bill to pay (or none at all) if you stick with your plan. This only works well, however, if you pay your card in full every month.
5. Limit What You Use Your Credit Card For
Use your credit card for only one type of purchase – and that’s it, e.g. gas. Choose a type of purchase that has an automatic limit to your spending. A magazine subscription or set monthly bill also works. Avoid costs that can vary a lot from one month to the next, like cell phone bills.
6. Keep the Limit Low
Request a low limit, or if your limit is currently higher than you’re comfortable with, call the credit card company to lower the limit. They are no longer allowed to raise your credit card limit without your consent, so they might try to talk you out of lowering it. Stick to your guns and lower your limit to something reasonable. You do not need high credit limits and numerous credit cards to build a positive credit rating, and if you should be the victim of fraud, a lower limit means a thief can do less damage.
Many credit card companies charge a fee for going over the limit (if they allow you to) and usually a higher interest rate on the amount over the limit. Additionally, it damages your credit when you go over the limit.
7. Avoid Taking Cash Advances on Your Credit Card
You are charged interest from the day you take the cash advance until the day you repay the entire amount, and unlike regular credit card purchases, there is no grace period on cash advances from a credit card. Some credit card companies charge a higher interest rate on cash advances than regular credit purchases.
8. Put the Card Away If You Can’t Pay It Off Each Month
If you can’t pay the credit card in full for one month, put it away until it’s paid off. If you have to, damage the card so that you can’t use it. When you’re ready to use it again, call and ask for a replacement card. However, don’t try this more than once or twice – the credit card company will wonder if you’re up to no good!
9. Pay Double the Minimum Payment
Making only minimum payments will keep you in debt for years. In fact, if you look closely at the notes at the very bottom of your credit card statement, it tells you how long it will take you to pay off your credit card if you only make minimum payments. If you can’t pay the full balance every month, pay at least double the minimum required payment each month. Then also stop using the card and you’ll see your balance disappearing.
10. Only Have One Credit Card
Make it your personal rule to only have one credit card, period. No exceptions. This also makes it easier to decline credit card offers when you’re approached in malls or stores.
11. Don’t Use Credit to Pay for Credit
Many people use their line of credit, which has a much lower interest rate, to pay off their credit cards. But if your line of credit is never paid off, your debt will only get bigger each month. Get help if you’re not able to pay your credit card off within a few months or if you find that you’re using it to pay for regular living expenses.
12. Make Sure Your “Rewards” Are Worth It
Be aware of the terms and conditions of your card holder agreements, as well as how the reward programs work. It can be easy to collect points but it may have been less expensive to purchase the item outright, especially if you end up paying interest on your purchases.
How to Make Credit Card Reward Points Work for You http://www.mymoneycoach.ca/blog/make-credit-card-rewards-work-you.html
13. Build Your Credit Rating Without Going into Debt
If you want to use the credit card to help build your credit rating and you’re worried that you’ll overspend, don’t use the card for retail purchases. Instead, set up one pre-authorized charge that will go through for a set amount each month, e.g. a gym membership, and then lock the card up. You’ll still build a positive credit rating because the account is being used, you know that it fits your budget because you’ve planned for that expense, but you won’t be tempted to overspend.
14. Check Your Credit Card Statement for Errors
Every month, carefully check your credit card statement to make sure that there are no errors. It’s a good idea to keep receipts for all of your credit card purchases so that you can verify the amounts against your statement. If you find an error, report it to your credit card issuer right away.
START the MONEY SMART CHALLENGE TODAY by ANSWERING this QUESTION:
Money Smart Week 6 Question: Which of the 14 Tips on How To Use a Credit Card Wisely and Not End Up in Debt will you implement?
Now, What Do I Do?
Email your answer to the Money Smart Week 6 Question and your full name and mailing address to firstname.lastname@example.org
Your name will automatically be entered into a draw for a Samsung Galaxy Tablet. (a $300 Value!)
You can enter your name once each week for a total of 17 chances to win!
Answer the question anytime before the end of the Challenge on May 28, 2017 and your name will be entered into the draw for a Samsung Tablet.
So, If you missed answering any of the questions for the previous week, go to those weeks and answer the question(s) now.
(NOTE! Only residents of City of Camrose and Camrose County are eligible for the draw for the Samsung Galaxy Tablet.)