Before Taking on a Credit Card
A credit card can seem like a great idea, but before you apply for a credit card there are some things you should be a little wary of. Credit cards can be great if you use them correctly. Otherwise they can soon become the hump on your back that you have to have surgically removed. Credit cards let you pay for items with a line of credit and then the bill comes. This is where a lot of individuals get into trouble, especially with the current situation in the UK.
When you see an empty wallet and reach for the credit card it is so easy to just pay for what you need or want without thinking about the consequences. For those who don’t understand what they are getting into or can’t control themselves with cards, this can be disastrous in a financial outlook.
We have tried to ask the question what is it about credit cards that make it so easy for them to be abused? After all they seem like the perfect solution to not having money when you need it. You can book a travel vacation, hotel, rental car, and the best thing is the instant gratification. When something sounds too good to be true it usually is.
Credit cards should be looked at in simple terms. For example when you are trying to save money, you might open a savings accounts that will accrue you interest. A credit card is going to do the same thing, but of course in the negative. As that balance increases you are going to be paying more to the credit card company than the purchase was originally; added to that you will most likely still be using the card as you try to pay it off. There are also a lot of fees associated with credit cards and how things are paid off.
If you have a balance transfer card that you have also used for purchases, chances are the promotional deals are being paid off first and these are usually the amounts you aren’t paying interest on. This means your purchases will be making interest that you have to pay back. It is a vicious cycle when you start depending on credit cards.
Most credit cards have limits for the balances; however when you reach that limit or near that limit you might find the company has increased the limit to accommodate your spending. Credit card companies have always increased the limit when you are in good standing. Many of them will do this without your asking for the limit to be raised. This can have a negative effect on your credit score because it is seen as having more credit. The companies can’t raise the limit without sending a notification letter, which is usually a congratulations letter telling you what they have done. A credit card also doesn’t have a fixed interest rate. The company can raise your interest rate at their whim. So before you get a card just think about the consequences and choose wisely.
Credit Card Updates June 2008
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