There are a lot of questions about using credit cards. Here’s some important points for you:
A quick look around on the Internet this morning shows that more than 9 million people in the UK do not pay off their credit card balances each month. (The principles of what follows are the same in the USA, or wherever you are right now.)
The average balance left outstanding is over 1000. The interest charged on such a balance varies according to the card, but we have seen rates of up to 29%!
When you bear in mind that banks are offering somewhere in the region of 3% interest on account balances, it’s easy to see how such a fantastic amount of money is turned over within the banking and finance industry!
Consider a card with an average outstanding balance of 1000: with an interest rate of 19%, this could take over 20 years to pay off at minimum payment levels! On a balance of 1000 at 19% for 20 years, you’d pay back a total of 3889.
Credit cards are a tool designed to make a profit for those who issued them. They are not provided for your convenience! The only way it makes sense to use a credit card is to only use it up to a point at which you can pay the full balance each month.
In other words you are using it to access money you already possess, and not using it as a form of loan. To use a credit card for a loan is going to be some of the most expensive credit you will ever encounter.
I know that life isn’t always easy, and some people will say they need to use a credit card to get by. This is the worst position you could be in, and it is really important that you do something about your financial circumstances if you are in this position. Continuing along that path will steadily and inexorably lead to financial disaster.
Nobody said it’s easy! But I would be doing no service at all if I avoided the facts, even if it’s not what everybody wants to hear.
Another unwise use for a credit card is to get a cash advance from an ATM machine. whereas with purchases on the credit card there is an interest-free period up until the next payment is due, there is no such period of grace for cash withdrawals. Use a debit card instead.
And be aware of the deal with store cards. These can typically carry some of the highest interest rates around. Any savings are often have wiped out by the fact that you are encouraged to buy more then you otherwise might have, and even if they are genuinely savings, they are typically dwarfed by the total interest when the balance is not paid in full.
Use your credit card wisely, use it to your advantage, and get on the right side of the credit card game.