What are the six steps to credit card success? The six things that can mean the difference between a great credit history and healthy credit card use or almost certain financial disaster? They may be simple steps - but they're critical ones - and if you have any hope of a happy financial future, you'd best commit them to memory.
Step 1: Realize That Loyalty Is A Bygone
Let's get something clear right off the bat... There is no room for loyalty or chivalry in the credit card world. If you have a credit card that's charging you 9.9 percent interest and you get an offer for a credit card with a 4.9 interest rate, switch credit cards no matter how nice you think your current credit card company is.
You may be afraid of change, you may think it's a hassle, but a lower interest rate can save you hundreds of dollars. Trust me, if you want to know how loyal your credit card company is, consider what happens if you make a couple of late payments and see how well they treat you. That should clear things up right quick. (I obviously don't recommend making late payments.)
Step 2: Understand A Credit Card Is Cash, Not Plastic
For some reason, many consumers don't realize they are spending cash when they make a credit card purchase. Because of this, it's easier to spend more money than you should when paying with a credit card.
If you want to maintain great credit card health, you absolutely must start looking at credit card purchases as if you were taking out a cash loan to pay for your purchase. While that $450 leather jacket may seem really nice, you'll probably think twice about charging it if you view your credit card as a cash loan.
Step 3: Be Neurotic
Yes, it sounds odd. Why in the world would someone want to be neurotic? Well, if you're not neurotic about paying your credit card bills on time, it will cost you hundreds of dollars.
Most credit cards increase your interest rate the minute you make your first late payment. Then, thanks to something called a Universal Default Agreement, all of your other credit card companies can follow suit and raise the interest rate you pay them too. Depending on how much credit card debt you carry, that can add up to quite the pretty penny over time.
Step 4: Get Plugged In
Grace periods are getting shorter, late payment penalties are getting harsher and the postal service is as unreliable as ever.
What does this mean to you? It means you need to get your credit card statement online.
By having your credit card statement emailed to you the same day it is generated, you can make your payment online that very same day, ensuring that your credit card payments are never late and your credit card company has no reason to play their "penalty" game with you.
Step 5: Learn What Credit Card Works Best For You
The credit card that's perfect for your friend may not be the same credit card that's perfect for you. For instance, someone who pays their credit card balance in full each month will benefit from a rewards card, but because rewards cards come with higher interest rates, someone who carries a balance on their card would be better served by a low-interest credit card.
If you want to make sure your credit card future is a happy one, you'd best learn which credit cards best suit your needs.
Step 6: Continue Your Credit Card Education
An informed credit card user is a happy one. Credit card laws are changing constantly and the tricks and cons of the credit card world are ever-evolving. If you want to keep your credit card health in good shape, you have to remain on top of your credit card game.
Keep up on credit card news and make sure you read any policy changes or changes in the terms and conditions of each credit card you carry.
By following these six simple steps, you'll be well on your way to managing your credit card finances and paving the way for a healthy financial future.
Fifty years ago, credit was hard to come by. Banks were hesitant to lend money without collateral of some kind or without significant net worth on the part of the buyer. Now, it seems banks are more than willing to throw money at us. They are gambling that we will use the credit and carry a balance the fees and interest charged on the loans and cards are huge sources of income for the bank. The more we spend, the more they make. Today getting credit is easy, and getting in serious trouble with the credit is even easier.
Too Much Credit?
The average person can borrow over three times his income to purchase a new home with little or no down payment. Car loans can be taken out for over five years to help buyers purchase expensive vehicles at a reasonable monthly payment. Credit card pre-approvals and applications arrive at the mailbox daily. With so much credit available, it can be very hard to resist, even for those who know how dangerous it can be.
A home loan should not be more than two times your annual income, before taxes. So why do banks offer you up to three times your income? Because they know you will do everything you can to pay your mortgage each month and because they know most people will spend as much as they are allowed. It takes a strong person indeed to spend only $200,000 when they are told by the bank they can spend over $300,000.
Cars lose value instantly when purchased, and the longer a loan, the less car you own each year. Considering most buyers trade in a car in less than five years, the banks offering the long loans are making a bundle on the long, drawn out interest charged over the years on a car that is seldom worth what a buyer ends up paying.
Credit card companies have a relatively safe bet that consumers won't be paying off the balance each month. Balances on credit cards are subjected to very high interest rates. The higher the balance and interest rate, the more money the bank is making. And the less likely you are to ever have the card paid off again.
Credit Dangers
With so much easy credit, its no wonder the average consumer has over eight thousand dollars in debt. With incomes unlikely to rise at the rate of spending, the payments on all the debt cripple many households. House payments eat up half of the monthly income and car payments take out another large chunk. Minimum credit card payments total large amounts and every dollar sent to the cards is getting you nowhere close to debt free.
Using too much credit is a spiral that is hard to stop. The more you spend, the more you pay on bills. The more you spend on bills, the less cash you have, so the more you borrow. Of course this increases your bills further and finally, you owe more than you make. When this happens there are few outs other than bankruptcy or some form of debt counseling.
Protecting Yourself
Rather than trying to dig yourself out of a financial hole for years, it is far better to stay away from falling into one in the first place. Credit is a wonderful thing that helps us make large purchases and enjoy life, but it must be used wisely.
Be realistic with the amount you can spend and avoid temptation. Every dollar you borrow is costing you money, and the more you borrow the more money you are making someone else. If you can't pay cash at the time, be sure you have the ability to pay more than the minimum on each bill. Pay your credit card statement in full each month and avoid high interest rates and long terms. Be aware of credit risks and use your money wisely, after all, you worked hard to earn it.
Both Max Anderson & Joshua Watson are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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