As in most of the world, there are many Australians who currently have mounting credit card debt. Despite numerous warnings about the proper use of credit cards, too many people wind up facing bills they cannot pay and debt that can wreck their credit score. This makes it tougher to secure loans for homes or autos which can really hamper your financial situation. Here we outline how to properly manage your credit cards.
The main purpose of credit cards is to pay for items or services when you do not have the cash on hand to do so. This can be quite useful when paying for emergency services for example, but all too often people overuse their credit cards and wind up in debt that is deeper than they might initially understand.
For those who are just getting credit cards for the first time or have managed to pay off previous debt and are thinking about using them again, here are a few tips that will help you better manage your finances. ‘
You should have two types of savings accounts, one for large down payments and the other for emergency uses. All too often, people are caught short-handed when it comes to unexpected bills such as utilities that are surprisingly high in the summer heat, a car accident where repairs are needed to be made, or a bill that must be paid off quickly.
By having a cash reserve for emergency payments, you can use that instead of your credit cards. This way, the bill is paid and you can keep your credit cards for other uses. The larger fund for down payments on mortgages and auto loans also keeps your credit card usage down as you do not have to dip into them in case you are cash-short.
Keep in mind that credit cards should be used only when there is no other choice. Remember that you have debit cards which can be tied into your checking account and cash for small payments. Your credit card is really like going to a lender in that you’ll pay a high percentage for the funds that you receive.
One of the best aspects about using credit cards is that you can build up your credit score fairly quickly if used correctly. While this may sound counter-intuitive at first, you should make some initial payments with your cards on fairly inexpensive items. However, do not exceed 25% of your credit limit so that you can keep the balance in check. Then, pay off the charges about 20% at a time which will take about five to six months to accomplish.
Basically, this action will allow you to build up your credit score because you made regular payments. This will help you secure larger loans while keeping your credit cards in check.
Too many credit card owners fail to employ the proper security and keep up with their balances to detect fraud. A little care and attention can go a long way towards protecting your credit cards from being stolen or used by unscrupulous hackers.
EMV Chip: This is a computer chip that is put into your credit card that makes it difficult for fraudsters to use or counterfeit. You may have seen similar chips at retail stores and banking institutions which provides greater protection. The issue with the old magnetic strips is that it is very easy for thieves to simply steal the information from the card at a distance and use it for their own needs. So, ask when your new credit cards will have the chip.
You should make it a habit of checking your credit card statements and credit report at least once a month or perhaps once every two or three months if you do not use your credit cards very often. This is important for a number of reasons when it comes to protecting your credit.
Although the number of mistakes made in assigning debt to a credit score is relatively few, it has happened so it pays to be diligent. In addition, by reading over your credit card statements each month, you can spot any unfamiliar charges and dispute them with the company. By checking on your credit report and keeping up with your credit card statements, you can catch suspicious activity sooner when it is much easier to handle.
Once you have established your credit rating and qualify for other cards, you should focus on those that provide a long-term low interest rate. This is important because many credit card companies offer an introductory rate that jumps after six, nine, twelve, or eighteen months to a considerably higher level.
Beware of reward cards that offer frequent flyer miles or other benefits as they often have higher rates as well. You should not consider a card that offers rewards unless you stand to gain more from what is received than the interest that you pay. In other words, calculate the interest level on the rewards card compared to a lower interest card while spending the same amount of money. You’ll most often find that you actually save more money on the lower interest credit card than the rewards you earn from the higher interest one.
Even low interest credit cards offer additional benefits to consumers. So, when choosing the right one for your needs be sure to look at the interest rate and use the benefits as the tie-breaker. That way, you get the best deal possible while still saving a considerable amount of money. Remember that the benefits include the annual fee as well.
Many cards have a low annual fee with higher interest rates while others have a higher annual fee with lower interest rates. So, check them out first before deciding which one is right for your needs.
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