Five Tips To Use Credit Cards Wisely
It is almost eight years since I started using credit cards. I rarely paid interest on my credit cards even though I have used them extensively. I even used that to buy my car but the highest interest rate I ever paid was 1.99%. Yes, if you are smart enough and learn the secret of the trade you can take advantage of the credit cards. Here are a few tips.
1 – All Credit Card Offers Are Traps
This is the first lesson anyone using a credit card should learn. Before you signup for a particular card or while using a card one should keep this in mind. The company that offers you a credit card is not doing that out of love for you but to extract money from you. If you understand that, you have won half the battle in successfully using credit cards.
Take for example a very prevalent practice by credit card companies – offering you the zero percent or low balance transfer offers. At first look that offer sounds great and very promising. But it is full of traps and if you are naïve you just walk into the trap set by the credit card companies. The credit card companies are trying to exploit a clause in the terms and conditions that states that once you have balances with different APRs in your account, the one with the lowest APR will be paid off first. That is the reason why most of these credit card companies are ready to increase your credit line immediately after you do a balance transfer. When one spends the extra credit line or balance in the account the credit card companies can charge those with higher percentage APR (This rule is no longer valid in US but this rule is valid in other parts of the world).
2 – Trap the Credit Card Companies in their Own Trap
Credit card companies used a bait to trap your money. Why don’t you cleverly use the same trap to your advantage? For that to happen one should understand why a Credit Card Company in the first place tries to entrap you with this offer. Once you know that you can take necessary precaution and use that to your advantage.
In the above example, if you know the reason why credit card companies offer you low percentage balance transfer APR, you could easily use that knowledge against them. Make the balance in the credit card you are going to do a balance transfer zero before you do a balance transfer. After the balance transfer, never use that card for any purchases or anything till that balance transfer is paid off fully. This is exactly what I did when I bought the car. The bank was offering me 6.99% APR for buying a car and I had an offer from a credit card company for 1.99%. I used it and saved a lot of money.
3 – Never sign up for credit cards with annual fees
Never ever sign up for cards that have annual fees. Credit cards are not worth paying annual fees. The cards that have annual fees will come up with attractive advertisements that are hard to resist. When one is in such a situation remember rule number 1 - All Credit Card Offers Have Traps.
The most common card with sign up fees that people usually sign up for – the credit cards offered by the airline companies with an annual fees and an offer of a free ticket once you have accumulated points. I had a friend who had this kind of a card from one of the airlines. He was paying $80 per year as annual fees for this card. It took him four years to accumulate enough points to get a free ticket. By that time he had paid $320 as annual fees and the free ticket he got was worth around $240!
4 – Choose the Reward Credit Card Carefully
There are hell lots of cards that offer rewards to use them. Choose the right card and you can save a lot. Do you drive a lot everyday to work? Then you should have a card that offers cash back or some reward on the gas. I use one card that offers 5% cash back on gasoline and one card that offers 3% cash back on groceries and eating out. At the end of the year that adds up to a good amount.
5 – Not Free Money
Another important thing to understand before using the card. This plastic card in our wallet is not free money. The earlier you realize the better it will be. I have seen lot of people who realize this once they sink so deep in credit card debts. This is a debt that can pull you in very fast from where recovery is really painful.
Credit cards are here for helping us out if used properly and wisely. Like anything else if you try to play with credit cards forgetting the rules of the game you are inviting trouble for yourself that may take years and years to resolve.