Credit Cards: Be Aware Of The Other Side Of The Picture |
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Credit cards are a type of unsecured credit with a line of credit from the issuer hiding a variety of surprises in the fine print. This is the most common type of credit. With a perfect credit rating, you're likely to attract a rash of offers for new credit cards. Usually without any annual fee, they may offer reasonable interest rates (where credit cards are concerned), a grace period of
one month and exciting initial offers like 6 months without interest on balance transfers and new purchases. The less fortunate ones have to pay over $20 annually for a card with higher interest rates and less incentives, if any at all. Grace periods may be no longer than 20 days and your payment may have to be early enough to be considered on time. Others may get nothing more than secured credit cards, where a deposit is required and you can use up to the amount in the deposit only. Being expensive, the card can only help in rebuilding credit in case of past credit problems. Not necessarily bad, credit cards can turn into problems very fast. Almost anything can be charged with a month's time to make the payment. You can join the various reward schemes for points earned on purchases that are inevitable like food and gasoline. All this can work fine provided you pay off the bill every month. The problem arises when you run up your credit card debt and pay only the minimum amount due. A $300 TV from a sale can end up costing over $1000. Over ten years may be required to pay off a $5000 debt if only minimum monthly payments are made. People generally wouldn't want to pay for a tank of gas ten years after using it. Close scrutiny of your monthly statement will reveal that the monthly minimum payment just about covers the interest due for that month. Thus the actual amount owed, hardly changes. In this case it would be best to avoid credit cards. However the prospect is not practical for most people. Credit cards can be necessary for certain expenses like renting a car. They also prove handy for emergencies. The more practical solution is to charge only what you can pay off quickly. Or else, pay as much as possible over the minimum amount that you can afford. Alternatively your credit cards debt can be consolidated into a lower interest loan or line of credit. In this case destroy all your credit cards and never apply for another. Companies of credit cards now conduct more frequent checking of your credit report, even every month. Despite never being late in payments, they may no longer consider you a prime customer and may raise interest rate. Among the desirable qualities for the banks is the use of your overall debt with high ratio making them nervous. Increased rate is also possible with a late payment to another credit card company, or even the phone or electric company. Even a single day's delay in payment to a creditor is enough to raise interest rate up to four times. If it was a free or very low interest offers that banks entice you with, the rate can shoot up to as much as 29%. Therefore a final piece of advice for credit cards is to never ignore the little messages by the banks either with your statements or separately. Nasty surprises may be in store like increased interest that could be avoided by simply notifying the credit card company in writing that you no longer wish to use their card. It becomes even more important for you to be responsible in the use of credit. The quick escape of bankruptcy will be more difficult to find and it can be too costly in the long run to damage your credit rating at any point in life. Apart from the effect on the interest rate on credit cards, personal loans and mortgages, bad credit score can even jeopardize your chances of a new job, apartment rental or your auto insurance premiums. Now make sure you handle the plastic pieces with seriousness and sensibility. |
