What started with good intentions for the American consumer is now turning into the worst nightmare. Having access to credit should be a luxury, not a must. Now, many Americans can not operate without access to a credit card.
How can we break this cycle of dependence on credit cards?
What is the long-term benefit us, even with a credit card?
We know short, we are able to buy that high-ticket item now that we can not afford the small country's banking account.
We are able to go on vacation and to live well for a week and worry about the bill later.
Credit cards are a billion dollar industry. The banks have an impressive amount of money for the interest charge and late fees they collect. Also, there are small fees and charges that have rings with every day without our knowledge.
The interest credit cards was 18% annually. By the time you pay the flat screen TV fifteen years later, it has tripled the amount you paid in 2004.
Interest, my friend, is one of the main sources on which banks make their money off of you when you use your card.
Your monthly payment to the company card consists of principal and interest. The principal is the amount you borrow, the interest is the cost of borrowing money to purchase. Interest rates on cards can vary from as low as 4.99% to reach 30%! The rate depends on credit score borrowers. The higher the credit score, the lower the interest rate will be charged.
Thus, for example, if you have a credit score of 775, a credit card company may charge you 4.99% and give you $ 10,000 limit. If you have a score of 557, may charge you interest of 24% and give you a limit of $ 3,000.
Credit card companies do this because they feel that the person with the lowest credit score is a higher risk of default on credit card bill. We, in turn, gives a lower credit limit and charge a higher interest rate. If the person has a good payment history, that will increase the credit limit and may reduce the interest rate.
Plenty of time will increase the credit limit, but will keep the same rate.
When you make your monthly payment, most of your money goes to interest and a little goes towards the principal. This is because your payments are depreciated.
Extinction is when a part of the payment goes to interest costs and the remainder of the payment goes towards the principal amount, the amount borrowed. Interest is calculated on the amount due today and will then become progressively smaller as the end of the loan balance decreases.
Because of the way depreciation is configured, you can end up paying double to triple the value of the original amount of the principal borrowed.
Depreciation is only one of the ways that credit card companies give us trapped in financial debt for all her adult life. There are several pitfalls of credit cards you need to know.
Cash Advances - Every credit card you can sketch or cash from ATM machine or a convenience checks. These cash advances come with a heavy price. The cash advances charged a much higher rate (by 20-25%) compared to a normal market. Even if you use a check easy to transfer a balance from one card to another, will be charged a higher interest rate. This is like legal loan Sharking.
Credit card companies will send checks in the mail facility to your account each month to tempt you to use. It does seem to be as easy as making a purchase with your credit card. The fine print will say the opposite.
Avoid using cash advances as much as possible. There is no grace period on cash advances as opposed to normal markets, where they will have 30 days grace period to pay off the balance before interest kicks? The interest on cash withdrawals kicks in one minute you draw money from ATM machine .
Late Fee & Over the Charges Limit - Apart from the exorbitant interest rates that credit card companies, the fees are the next biggest way to make money. The fine print gives free reign of the credit card companies "to change interest rates at whim whenever they want. A late payment or over limit fee would trigger such higher rates.
Most companies charge $ 30 late fee if you pay after the grace period of five days. If you have a low rate, this will give the company credit card by the Authority to charge a higher interest rate from that point. You can rate jumped from 5% to 18%.
If you go over your credit limit, most companies will charge you $ 35 over the limit and end the dispute that you are over. It will also start to charge you a higher interest rate, because now you are "maxed out".
With the current credit crunch, card companies are reducing limits without proper notice cause customers to charge over their limit or maxing from their account. Once again, the customer is hit with a higher rate than any fault of theirs.
Annual Fees - Some credit card companies do not charge an annual fee. The ones that do not charge $ 150. They can charge all at once or break up the end to 12 more payments.
If you do not pay the fee in full, will pay interest at this annual fee, and also lose the availability of credit. Check your monthly statement carefully. You may have a zero balance in your account. Once the annual fee is charged, you now have a balance to be paid on. If ignored, when the annual fee is charged, you can run the chance of missing a payment and getting a derogatory on your credit report.
I've seen this happen several times. Whether you have a balance or not, check your statement.
Small Miscellaneous Charges - Another reason to check your monthly statement is closely because there are small fees are charged automatically to your account each month do not even notice.
I had a Visa Chase credit card that I rarely used. I went with low balance on the card and the monthly bill automatically deducted from my bank statement. One month I looked through my statement and noticed that $ 15 per month was charged to my account automatically each month for the past four months!.
I called customer service and discovered that I was charged for insurance credit card in case I became disabled and could not pay the bill anymore. Now I know that everyone can have this insurance, but never approved the charge. $ 15 per month is a small fee, but it adds up to $ 130 per month. If the credit card company gets 100,000 unsuspecting cardholders can bypass the end of each month, will make $ 13,000,000 in earnings. A small charge to thousands of customers can really add up.
Now that we know is in the interest of credit card companies to keep us trapped in debt, what can we do to keep ahead of the game?
The marketing efforts of credit card companies are becoming more aggressive and creative. We are bombarded with advertising everywhere we see. It is targeting even children in middle school. Adolescents approaching adult years of life have been trapped in debt.
Here are some tips to apply:
Keep your balances low - As I mentioned before in this book, the lower you keep your balances, the higher your score will be. The credit reporting agencies will rate higher your score if you keep your balance below 25% of your credit limit. Pay-down your balance if you are over 50%.
Check your monthly statement carefully to make sure the company your credit card has not reduced your limit without you knowing. Many times you will lower your limit first, and send a letter later.
Given the recent credit crunch, credit card companies assess each account has used more than 50% of their limit. If you notice a drop in credit score, or even a late payment on another credit card, have the right to reduce your credit limit without notice. This is the "universal clause default" in the fine print of publicity holder of your account.
Use automatic payments - This is a great method to use if you are paid a salary every pay period. By using automated payments, will be sure your payments are on time every month. You will not have to worry about late fees.
Some credit card companies delay implementing your payment to your account if you're close to a grace period so you can make money at the end of the end. We can not control the speed of payment we can get to the credit cards via snail mail.
Make sure you have the right budget, so you have enough in your bank account to cover the payment. Do not want to pay as a reward plan at your bank and interest on the company's credit card. Now this is a double whammy!
Charge what you can and then come back in full - I've used this method for a very long time and has developed perfectly for me. For example, if you had to buy an air ticket for a business trip, I will charge the airline ticket for $ 199. Since it is a business trip and I am ready to make money, you give the $ 199 fee in full at the end of the month when we get the bill.
You will avoid paying interest to the end and it will look good on the credit card company because I'm paying more than the minimum monthly bill.
When viewing a long history of paying more than the minimum monthly bill, you have a great chance of credit card company increases your limit.
By paying back immediately what is charged, it will accumulate a balance to be repaid in the long run. This will save you hundreds of dollars in not having to pay interest.
If you can not afford to pay cash for the type or able to pay at the end of the month, do not get it!
Negotiate the interest rate you down - Once you have created a long story about the time payments to the company credit card, you can negotiate with them to lower your interest rate; Even if you do not have a perfect score.
The credit card company does not want to lose a customer. Once you have established a good relationship with the company, it is your right to ask them for a lower rate. You have nothing to lose.
If you pay a lower rate, you will save yourself hundreds of dollars. If you do not give you a lower rate, you can transfer your balance to another credit card with lower interest rate, closing the account or do not charge any more information on why.
Try to use your credit card for emergencies and business costs - We all know by now that they have access to credit cards are a way of life in our society. We need to build our credit scores. Credit cards are convenient to use when you need to make purchases online.
We investigate the evils and temptations that come with access to credit cards, but when is the best way to use it for our benefit?
Instead of using credit cards to buy goods depreciation, shopping impulse, or buy big ticket items, I feel that there are two good cases to use your credit cards.
1. I have heard many economic experts such as Suze Orman say to take your credit card and put it in the freezer. This will prevent you from shopping incentive. He's right. Use your credit card for unexpected events, such as:
- Make travel arrangements to see a sick relative or attend a funeral.
-To make repairs to your car if you break down unexpectedly.
-To make repairs to your home if your boiler bursts or leaks your roof.
-Taking care of a small medical bill or to get medicine for yourself or your family.
These are some legitimate excuses to use your credit card in case of emergency. Things happen beyond our control. It's good to have piece of mind knowing that you can have your credit to fall back on in time of need.
Try to pay as you when the bill comes at the end of the month. Do not want to max out your limit. Should replenish your credit limit to another emergency is to be achieved.
2. It takes money to make more money. There will be cases where you need a credit card to help finance certain aspects of your business. Whether you are a startup or a seasoned business, may need access to capital to purchase for your business. You may need to market and promote your business too.
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