Friday, April 19, 2013

Why credit cards aren’t bad (Part II)

I won’t bore you with the usual “live within your means”, “don’t spend more than what you have” chants. Yes, they are true and yes, they are the key. But hopefully you know that. If you don’t, now you do.

A lot refer to a credit card charges as a 30-day, interest free loan. I don’t like to look at it that way, because it implies you don’t have the money to pay for what you’re charging right now. Refer to the chants mentioned earlier. One of the healthiest ways to use a credit card is as if you were using a debit card: have all of the money somewhere safe, like your checking account, before you even think about charging anything to the card. If you don’t have it, don’t spend it.

Now, here are a few pointers...
1) Know the terms & terminology – Know what your interest rate is, what your payment due date is and when the new statement comes. Know how to read the charges and take a quick glance to make sure you actually charged those things. There’s no shortage of tales of restaurants overcharging on the tip portion, stores swiping the card twice, or online services making a mistake.
2) Know the rules and how to work them in your favor – This one is critical. What’s the use of knowledge if not put to use? Now that you know all the dates, make sure you know how they work. I myself did not know what was due when. Not 100% of your charges are due at the same time, especially if you’ve made them in different months! Use this to your advantage. See this chart below.

3) Make calls – Think you could do better with your card? Call them and make them accommodate you within reason, or walk away. This means asking for a decrease in your APR, an increase in your credit limit, change your due dates or explain things. If this is not your oldest card and you can’t get them to cooperate, consider ditching it after it is paid off. A lot of companies will gladly take your business. If they are your oldest card, consider keeping it and doing the minimum to keep it open, for credit score's sake. A lot of cards will just close your account after so much inactivity. You could also look into upgrading it to a better card that offers you more benefits, or at least one that is less expensive to upkeep. Your interest wont change, but you can skip the yearly fees.
4) Be responsible and accountable – You know the dates, you know what was charged. Do not, I repeat, do NOT turn the blind eye on the card. As I mentioned before, they are rather merciless and will not give you the benefit of the doubt if you go over limit, skip a payment, or let wrong charges go through for months because you didn't check. As with law enforcement, ignorance is not an excuse.

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