Credit cards and the damage they can do
Unfortunately it has become all to common for many consumers to spiral into credit card debt. The concept sounds silly really why would you borrow money at 20% or more and put yourself into a debt cycle? The catch from most providers is to use gimmicks to hook you in then rely on you not being diligent about making your repayments. Some typical perks include interest free periods which allow the buyer a period of time before the interest effectively ‘kicks in’. Another common attachment to credit cards are frequent flyer points or store spending points to help entice you to spend more.
It’s important to remember that cash is king and in the majority of cases most people will find themselves behind the eight ball even if they are spending big and trying to be diligent about making their repayments. Even if you are able to keep a steady ship the likelihood is that your card will still have an annual fee or some type of cost to recoup something from the consumer. Some cards deliberately cap the level of points you can earn unless you pay a higher annual fee of course.
There are some exceptions to the aforementioned catches but they are scarce and hard to come across. The old adage of ‘If it sounds to good to be true then it probably is’ comes to mind.
Credit cards can be a very handy and important tool in budgeting and wealth creation if used effectively. Ensure you make a habit of doing the following –
– Paying off your balance before the interest free period expires each month.
– Transferring money you have saved onto the card periodically as your purchase things to take advantage of the points on offer without incurring interest.
– Doing your homework on the card you are going to apply for. What are the annual fees, interest rates and can you have more than one cardholder?
– Will you spend enough to justify needing the card and how long will it take you to accumulate enough points before you are able to utilise them.
In summary when it comes to credit cards be very careful and wise about the decisions you are making. At the end of the day the lender isnt giving you the card for nothing. They want you to spend and create bad habits and leave the card with a balance outstanding earning them plenty of interest. Also make sure you check out some of the free informational websites available such as www.cannex.com.au