Many believe that credit cards are downright evil. This is untrue. However, if they get into the wrong hands then they definitely can cause a lot of damage. Credit card companies make a lot of money on the spending habits of irresponsible borrowers. However, when credit cards are used in the right way, they can contribute to you in many different ways. They can increase your standard of living by helping you buy things like a house. How does this happen? Credit cards can contribute toward helping you build your credit score, which in turn will allow you to get a low interest rate on buying large items like a car and house and so on so forth.
However, if you do not know how to use a credit card properly, then you will be under crushing debt. To avoid these kinds of situations please continue reading.
- What you need to know about cash advances
This is basically when you use a credit card and withdraw money from an ATM machine. This can be an extremely dangerous habit to get into and we suggest you do not attempt it unless it is a case of dire need. You are charged interest from the minute the money is dispensed to you and the interest rate is extremely high as well.
- What you need to know about Interest
When you use a credit card, you are essentially borrowing that amount of money. Just like any other loan, you will have to pay interest on this amount that you have just borrowed. This is basically the cost of borrowing money and using money that isn’t your own. If you take a long time to pay off the credit card, you will be paying more and more interest. Every credit card company allows you a grace period to return the money. If you are able to do so, then you are awarded by having to pay no interest. This period is usually under 30 days. It’s always a good idea to pay off the balance from any purchase you might make by the payment deadline. This is a sure shot way of not having to pay any interest.
- What you need to know about minimum payments
The minimum payment is the least amount that you must pay on a monthly basis for your credit card, to ensure that you are not charged with a late fee. This amount will go towards the payment of the month’s interest. It absolutely does not mean that you have gotten rid of your debt. This amount is found by calculating the interest rate, the principal amount that is owed, the credit limit and of course your credit score.
Many a time people assume they are doing their deed by paying the minimum payments. However, this is untrue. In reality you end up spending a lot more than the cost of your purchase, if all you do is pay the minimum amount.
- What you need to know about Late Payments
When you make a late payment, you are definitely hurting your own credit. If you are a first time offender, you can perhaps get your credit card company to waive the amount, since it could have been a genuine mistake. However, if you do it more often, you are charged a late fee/ overdraft fee than usually also ends up into a higher interest rate. It’s important to be on top of things and be extremely organized about your payments. Put in reminders for yourself if you need to, to ensure that you are not over paying at any point.