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The exciting reasons for using a credit card…years ago when I got my first credit card, I was so excited! I would be able to purchase things I wanted with this piece of plastic and pay the bill later.
It seemed like such a simple concept until months went by and I would notice on my statement that my credit card bill balance was not shrinking.
I would mail a payment over a hundred dollars to pay off the balance, but then the next month there would be an interest charge of over $50! “What the heck”? It was a losing battle to pay this credit card bill.
This cycle went on for months. “What have I done”! No one was there to tell me that credit cards can get you in a situation that so many individuals face today……..DEBT!
I was young and naïve to think that the credit card was my solution to buying things that I wanted. I never realized how it could create a bondage and heart ache for me financially. In the meantime, you have to make extra money. The good news is that bill eventually got paid off.
If you are in debt with your credit card, there is hope! For now, if you are an individual struggling with your credit card debts, you can visit our article on How To Create A Plan To Get Out Of Credit Card Debt for tips and ideas to overcome this situation.
The Credit Card….
The remainder of this article will be for those individuals who never had a credit card or are contemplating getting one. Every credit card is different. There are those that have annual fees and no annual fee. Some have low interest rates and high interest rates.
There are credit card “Introductory” offers that come in the mail with some awesome offers. By the way, if you do get credit card offers in the mail and you don’t use them, be sure to shred the envelope and the contents.
Because of fraud nowadays, you don’t want trash diggers to get a hold of these offers that were meant for you. So be sure to shred those envelopes and contents.
If you never had a credit card or are contemplating getting one, there is one important thing. PAY THE ENTIRE BALANCE EVERY MONTH!
Yes, you need to pay your entire balance every month if you are going to benefit the use of a credit card. Get an idea of the balance you can afford to pay every month.
Based on your financial situation, are you comfortable paying a credit card balance of $250, $500, $1,000 every month? The amount you are comfortable paying monthly NEEDS to be determined before you start using the credit card!
This pre-determined amount then becomes your MAXIMUM amount that you can charge and comfortably pay off an entire balance every month.
The Credit Application
When you fill out a credit application, you fill out your personal income information. When the financial institution approves your application, you will be approved with a credit line.
The credit line you have been approved for, is the highest dollar amount that you can charge/purchase is up to this amount. For example, if you were approved for $2,500 as your credit line, you only can charge up to that $2,500 amount and nothing more.
For the sake of this article, our goal for you is to pay your entire balance every month. NEVER carry a balance going into the next month. The reason being is to avoid the interest charges.
Selecting a Card
Selecting a credit card can be determined by the goal or the benefits you want to attain by using a particular credit card. Some benefits are: accumulating points/mileage for traveling rewards, getting cash back or exchanging points for items like gift cards.
These are benefits that can be attained just by using a credit card from certain companies. Your best bet is to shop are around and compare the different offerings.
Yes, there are credit cards that have no annual fees and there are those that charge an annual fee. There are credit cards that have lower interest rates and there are cards with higher interest rates.
The Attractive Credit Card
So which credit cards should you choose? Remember now, PAY YOUR ENTIRE CREDIT CARD BALANCE EVERY MONTH! Be sure to keep that in mind!
Personally, we use credit cards that have annual fees. The interest rates on our cards are the average rate as other credit card companies. About 17 % at the time of this posting.
Because you are paying your entire credit card balance every month, the credit card interest should be a minimal concern….unless you forgot to send your payment in time. YIKES! Yes, that can happen but just pay the additional interest and late fees, move forward and get back on track.
The fees on these cards we use can run up to a $100 or more in annual fees. You may be thinking that is crazy! Yes, you are right! The annual fee credit card’s perks are CRAZY!
I find that the perks or benefits of annual fee credit cards exceeds those of no annual fee credit cards. There are few no annual fee credit cards that have perks that exceeds those of annual fee credit cards.
Kinds of Credit Cards
There are no annual fee credit cards that can be found at your local bank. To find the best deal, you have to do your homework! For example, when traveling, by using one of our credit card, the benefit allows the waiver for the cost of one baggage to go through cargo.
That baggage cost is usually about $25’s one-way or $50’s round trip. You see where I’m getting at? So if I traveled two round trips, that annual fee credit card already covered the cost of the annual fee of my credit card by offsetting the baggage cost of those two round trips.
Which Card to Choose…
What makes the deal sweeter is that we average five trips a year. Five roundtrips ($50/per round trip x 5 round trips) equals $250 in baggage fees. The baggage fees of $250 minus the credit card annual fee of $100 equals $150 of additional value that we got from this credit card.
We got more value for that credit card than what we paid for! Annual fees on credit cards can also be offset by getting cash back. There are more benefits or rewards that can be obtained from using a particular credit card. See below and read about more benefits.
1. Build your Credit Line
The most important benefit of using a credit card is improving your credit line and credit score by paying off your entire balance on time. Having a higher credit score improves or impacts your ability to get loans at better interest rates.
Your Credit Score
If you are planning on purchasing a new home or a new car, it is advantageous to have a high credit score as lenders will want to loan you larger amounts of money. Also, by having a higher credit score, required down payments for loans can be lowered just because of your high credit score.
By paying off your entire credit card balance on time, you are sending a message to the credit card company that you are serious about your finances and that you are a diligent, trustworthy individual.
2. Interest Free Loan up to a Month
Paying off your entire credit card balance on time every month is like getting a free loan every month! Because you are paying the entire balance, there is no interest charged to you. What a deal! Even your local bank won’t give you such an offer.
Credit card companies want you to use their credit cards. Take advantage of this benefit! Be responsible and pay your credit card balance every month knowing that you save money when you are not paying interest.
3. Cash Back Rewards
By shopping around, you will find that certain credit card companies have the benefits of getting cash back by you charging or purchasing with their credit card. By paying your entire credit card balance every month, you CAN get cash back. These cards are out there.
Be sure to read the credit card company’s terms and conditions on how they pay you the cash reward. Some companies will actually mail you a check and there are companies that will give you cash back in the form of a credit that is applied to your credit card statement. That is so NICE!
You can earn travel rewards for traveling simply by using your credit card! For some credit cards, every dollar that you spend, you earn one point or mile. There are also credit cards that promote offers that you can get two miles per dollar spent at establishments that a credit card is promoting.
You want to shop for the credit card that meets your needs for earning your traveling rewards. You can really save on travel expenses when you are able to use your credit card points/mileage to obtain your plane ticket(s). Other travel awards available can be used towards hotels, car rentals and cruises.
5. Added Value
When shopping for a credit card, be sure to read about the different benefits that are available for using those cards. Be sure to read the terms and conditions that the credit card company publishes regarding the use of their cards.
The terms and conditions is a long document to read but basically explains your relationship with the credit card company.
The terms and conditions talks about interest rates (how much it is and how much you can be charged) and it discloses the billing cycle and when your payment is due.
What I usually do is follow the bold headings and find the section that explains the additional benefits of the credit card. Depending on the credit card, here are more benefits you can find.
Trip Cancellation/Interruption Insurance
There are credit card companies that offer this insurance when purchasing trips with their cards. Should your trip gets cancelled because of sickness, weather or other situations, you can get reimbursed up to a covered amount that is disclosed in the terms and conditions. Expenses such as travel fares, hotels and tours that you paid for qualifies for this insurance.
No Foreign Transaction Fees
If you use your credit card in a foreign county outside the US, the foreign transaction fees can be waived. Read your terms and conditions to confirm this benefit is included with your credit card.
New purchases can be protected from theft and damages. Coverage can be up to 120 days for some credit card companies. Read your terms and conditions for the amounts and limitations of this coverage.
If you made a purchase on a credit card, find an advertisement of that purchased item that is less than what you paid for. You can get reimburse for that difference! Read the terms and conditions of the credit card company to see how this benefit works and how it can be useful to you.
Exchange points for gift cards or merchandise
The more you use your credit card, the more points you accumulate. You can redeem points for gift cards. There are gift cards that you can use at popular stores online or locally. You can also exchange for merchandise like kitchen utensils/household goods, electronics and more!
There may be more credit card benefits that have not been mention above. As you have read, a credit card can be a good tool to help you with your finances.
The rewards and benefits that you can get by using the credit card results in benefits that save you money! Be excited about it! Remembering to be mindful. Never abuse your credit card by charging more than you can fully pay for in a month.
Again, do your homework and shop for the credit card that meets your needs in rewards and benefits. Because all credit cards are different, be sure to read the terms and conditions.