Don't Let Credit Card Debt Be One of Your Must Have Life Experiences

Starting out in life is hard enough. Don't let credit card debt be part of your financial future.

For most people credit cards are not a good idea. They aren’t a good idea unless you know how to use them correctly and pay them off each month. The credit card trap is one that many people unwittingly fall into. A person may use it for an emergency or in times of financial trouble. Once you get thousands of dollars charged on the account you may find that getting it paid off becomes a financial burden that wasn’t planned for, and leads to even deeper financial troubles.

Know what the Fees are on Your Credit Card

By law, credit card companies must inform you of certain things. You receive information from your credit card company on your credit card terms. How many of us read these little pamphlets that come in our statements? It’s important to read these documents as they contain information as to what fees the credit card company charges and under what circumstances they impose these fees.

What happens if you make a Late Payment?

If you make a habit of making late payments, the credit card company can raise the interest on your credit card. But since new credit card regulations were put into place earlier this year by the government, your credit card company is required to give you a 45 day notice of when they want to increase your interest rate. They can only increase the interest rate on your future purchases not on the current balance on your card.

As part of their notice of the increase in rates, they must also give you information on how to cancel your card and opt out of the increase in the rate. Basically this cancels the account for future purchases. This does not relieve you of the responsibility of paying back your current credit obligation. The debt that remains on the account still will need to be paid back, but at least you will not have a higher interest rate on that debt. Depending on how good or bad your credit rating is you can shop around for a credit card with a more reasonable rate.

If you make payments late, this leads to further charges and fees that are applied to a credit card. Be sure to look at your schedule of fees provided by your credit card company to see what these are. You don’t want to have any nasty surprises if you miss a payment. If you have never missed a payment and are on good terms with your credit card company, many times they will waive these fees. All you will have to do is give them a call. Telling them that you delayed payment because of a financial shortcoming would not be a good thing to do. Just tell them you overlooked the due date. They won’t waive fees on a regular basis, but they will do it if paying late is not a common occurrence.

What to Use Instead of a Credit Card

Credit cards can be beneficial, especially if you travel a lot. Most airlines, car rental agencies, and hotels require a credit card for advance reservations. Many times a bank card tied to your checking account can be used for these purposes. If you use the bank card as a credit card be sure that you are aware that some companies place a hold on funds in your checking account. Gas stations are pretty notorious for this. They can put a hold of $75 to $100 on your account until the actual purchase is processed. One way to avoid this is to use the bank card attached to your checking account as an ATM card and enter your security code. In this way the transaction is settled almost instantly and there is no hold placed on money in your checking account.

Another option to credit cards would be to put some money into a savings account and pay cash for your purchases. This would eliminate impulse buying. Something having a credit card encourages. Impulse buying is bad for the budget. Besides if you don’t make instant decisions on purchases, this gives you an opportunity to shop around and get the best deal for purchase.

It doesn’t hurt to have at least one credit card. The problem comes when you use the card and spend more money than you can afford. Many young people get sucked into using a credit card. Unfortunately it’s a hard way to lesson to learn if you get in over your head. Listen to people who tell you about the dangers of credit card use. Don’t let it be an experience you have to go through. You don’t want this kind of a life experience. Believe me.

Sources:

http://en.wikipedia.org/wiki/Authorization_hold

http://www.mappingyourfuture.org/money/creditcardact.htm

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