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Avoid Credit Card Debt – How To Use A Credit Card
Nowadays credit cards are everywhere and there are many advantages to having one. They allow you to avoid carrying around large amounts of cash, they are a safe and convenient method of paying for goods and services, they are accepted all over the globe and they come in handy in case an emergency comes up.
But they also represent a great temptation to many people, and they can be a source of significant financial distress if they are not used responsibly. For many, credit card debt has become a major problem and it takes them a large amount of time and effort to get rid of it. Just like in the case of physical health, prevention is easier and more effective with your finances as well. By following a few simple steps you can control of your financial situation and make sure that you avoid the difficulties that come with building up debt.
The biggest problem with plastic seems to be the fact that people tend to lose perspective and ignore how much they can afford to spend. When you have cash in your wallet and you spend most of it, seeing the amount of money diminish makes you think twice before you buy a new item. A credit card on the other hand doesn’t change in any way no matter how much you charge on it, and after a while you may forget the fact that you have exceeded the sum you can comfortably pay off at the end of the month.
Your card should be treated just like cash in order to avoid accumulating debt. This means that you should only make purchases that your available liquid assets can cover. Setting up a budget and sticking to it will help you keep track of your financial situation and steer clear of buying things that you don’t need on a whim. The amount you charge on your card should be determined by your income, not the credit limit you have. Remember that using more than 30-50% of your available limit will make your credit score go down and make it difficult for you to obtain a loan later on.
Paying your balance in full by the end of the month also plays an important part in staying out of debt. If you are able to keep to your budget plan and avoid unnecessary shopping sprees, this should not be a problem, but sometimes emergencies come up and there is no other solution than to charge it to your card. In such cases, paying the minimum amount the company requires is the worst thing you can do, because it will only keep you indebted for a long time. Try to pay off as much as possible every time, even if it means giving up on a few things for a couple of months. Dragging out the payments is the start of long term financial trouble in many cases.
You should make sure that you respect the due date and make your payments on time as well. Being late can have a series of negative consequences such as being charged a late fee or having your interest rate raised by the issuer.
The reason many people run up a score is the fact that they own too many credit cards in the first place. Of course the companies do their best to convince us to use their products and we see so many advertisements and attractive offers all the time, but there is no reason why anyone should have more than one or two of them. The terms and conditions, interest rates and due dates vary for each product, and keeping track of all this can be a difficult task. By limiting their number you make sure that you avoid any mistakes that will have a negative effect on your credit score later on.
The issuer will most likely try to convince you to purchase additional services and products, such as insurance and fraud protection. The truth of the matter is that in most cases these services only represent a further cost, as you probably won’t need them. In case of fraud for instance, you are only liable for a small amount of money or nothing at all in the first place, so if they offer you these extras, you should simply decline them.
You should avoid taking out any cash advances, as these typically come with a much higher interest rate and you will be charged a transaction fee for them. Another downside is the fact that there is no grace period on them, so the moment you receive your money, you start paying interest for it. The companies usually apply payments to the balances with the lowest rates first, so the high interest on the cash advance will continue accumulating until you pay off your balance in full. Keeping track of your financial situation means reading the statements you receive at the end of the month as well. Although it may seem like a waste of time, reviewing your statement is necessary because there can be mistakes which will ultimately cost you money. If you see any charges you don’t recognize and you have reason to think an error has been made, it is your responsibility to get in touch with the company immediately and report the inaccuracy.
Using these simple tips will help you avoid debt and stay in control of your money all the time. There are many temptations around and it is a bit of an effort to rationally analyze every purchase you make, but it is definitely easier than digging yourself out of debt. Preventing this problem will allow you to enjoy the rewards of having a credit card and make full use of the opportunities provided by it without having to worry about your future.
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