Protect Yourself From Credit Cards

Friday, June 11, 2010, 2:36 AM | Leave Comment

Whether during recessionary or booming economy, most Americans will always have the habit of paying for their purchases with the convenience of a credit card.

The growing number of new credit, charge and debit cards and the dizzying array of special offers from the issuers are still leaving many people confused about how to manage their wallets.

I don’t use checks. I don’t carry more than $20 in my wallet. I use credit card a lot, for everything whether small or big purchases.

But I make sure that I am able to pay the bill in full by the due date every month.

I have a debit card that I use only at the ATM machine and I try to withdraw only $20. So I carry cash in my wallet but not that much.

I don’t buy anything with the debit card. I stopped paying bills with checks more than five years ago. I pay bill online. My Bank provides the service free of charge.

Credit Cards are much more convenient to use than cash and checks. The fact of the matter is, experts say, the average person owns at least six cards and carries balances on most of them, even though many of the perks that these cards provide overlap.

Credit Cards

Thousands of financial institutions issue bankcards such as MasterCard, Visa, and Discover. Other types of credit cards include retail cards that are issued by stores, and American Express’s Blue Card.

  • So what’s the problem?

    The problem is more than two-thirds of Americans use their credit cards as personal loans, carrying balances from month to month and making exuberant interest payments.

    These folks don’t realize that they are almost always charged interest on all new purchases immediately.

    Even if you pay your bill for the month in full by the end of the grace period, you would definitely pay extra in interest.

  • What’s the solution?

    You don’t need more than two credit cards. Use one with a low interest rate, perhaps less than 12%, for purchases you want to pay for over a period of time.

    Use the second bank credit card – one that charges no annual fee and has a grace period during which time you are not charged interest on new purchases that you plan to pay for in full each month.

Charge Cards

American Express, Diner’s Club and most gasoline cards require you to pay the bill in full each month. These cards are useful for those folks who want the convenience of plastic but don’t want to run up large debts. Charge cards, however, are not accepted in as many locations as credit cards.

Debit Cards

With a debit card, the price of your purchase is deducted from your checking or savings account immediately. Some folks prefer to use debit cards because they don’t want to carry around a lot of cash or spend more money than they have in their checking accounts.

  • Drawback

    • Fees for debit cards can be costly. Your bank may charge up to $1.50 every time you make a purchase with a debit card. Also make sure you don’t overdraw your account.

    • Debit cards are not covered by the same consumer protection laws as credit cards.

  • Solution

    Unless you hate paying bills, use a credit or charge card instead of a debit card and pay the bill in full.

Secured Credit Cards

For anyone who can’t qualify for a credit card because of bankruptcy or previous credit problems, or because they have not established credit, a secured credit card can be the answer.

Avoid banks that charge high up-front fees. Make sure that your payments will be reported on a regular basis to all three major credit bureaus since one of the purposes of the secured credit card is to help you rebuild your credit rating.

Rebate Cards

These cards are offered by a variety of companies, from automakers to computer software firms. They provide cash rebates, discounts on goods or services or free merchandise.

  • Drawbacks

    If you charge less than a certain amount, you won’t earn much of a rebate. They are only worthwhile if you charge several thousand dollars each month and then pay the bill in full each month. These cards charge higher interest rates than other bank cards, making them an expensive choice for cardholders who carry balances

In a Nutshell
Most folks don’t realize it but carrying a large balance on their credit card is like accepting a 20% or more interest rate on a personal loan. Think about it. The monthly payments are small, but you pay much more in the long run. That’s one reason why folks in deep debt will never be able to get out of it unless there is some constructive and positive external interrupt in the ongoing cycle.

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