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How
often have you seen someone going through their
wallet searching for a
credit card
in the checkout line- and were shocked by the
number of cards they had in their wallet? Credit
cards can be used as a form of identification when
applying for a major purchase, or when renting a
car; and they can be used for convenient purchases
that you won’t have to pay for until a month after
you buy them.
Except, that’s not how it usually happens.
Typically, people who have an abundance of
credit cards
use them frequently, and have to carry a balance
from one month to the next because they are unable
to pay each card off in full when the bills come
in. So what happens then? Credit card holders
are being charged high
interest rates
for each of their purchases, sometimes up to 24%!
Credit cards are habit forming. It is very easy
to pull out a piece of plastic, swipe it through
the register and buy something you couldn’t afford
otherwise. It’s tempting to think that the money
will come later, and you’ll pay for it then. More
often than not, the bills are more than the money
you have later to pay them with. A study in 1999
showed that consumers in America used credit cards
to charge over $1.2 trillion.
Even with this kind of negative usage, credit
cards, when used properly, are a terrific source
of financial convenience. The trick is to not
over indulge yourself when you use them.
It’s also helpful to keep only one or two credit
cards available to you at one time. Even if you
receive a new credit card offer in the mail every
day, you should stick to having a general use
credit card (one that can be used for any kind of
purchase), and one for emergencies. An emergency
credit card allows you the peace of mind of
knowing if an unexpected expense comes up that you
have to pay, but don’t have the extra money
available to pay it, you at least have a backup in
the form of a credit card that will allow you to
pay for it.
Using a general use credit card should be done
with extreme discipline. Select one that offers
rewards,
cash back
or other features that you can benefit from. Make
your weekly purchases on your general use credit
card, from gasoline to groceries, and keep track
of your purchases so you know how much money you
are using on the card. That way, you will know
when you’ve reached your spending limit for each
week based on the amount you have budgeted for
such purchases. Set aside money from your
paycheck each week for your
credit card.
When the bill comes in the mail, immediately send
out the check for the FULL AMOUNT. This avoids
finance charges,
but has allowed you to earn interest on the money
for the full month that you kept it in your bank
account prior to mailing the payment!
When you use a credit card for your every day
purchases with the discipline required to keep
your spending in check, you are going to benefit
greatly from the
rewards programs
and interest free purchasing power you get when
you pay off your balance each month in full. You
are able to keep higher amounts of money in your
bank accounts for longer periods of time, allowing
the money to earn a little interest before the
credit card payment is due. You also are building
a strong
credit rating
by making purchases and paying them off each
month, and will help you when it’s time to apply
for a mortgage or large loan for a new car or boat
or other high ticket item.
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