How to Wisely Use Credit Cards

A sad but true statement: more and more Americans are becoming financially dependent on credit cards for their day to day living expenses. Given the economy, rising interest rates, and fees, you can imagine where many of these folks will end up at in ten or fifteen years, if not, let me help…they will literally be up to their eyeballs in debt. What started as an account with a three hundred dollar credit limit is now a closed account, being assessed astronomical late and overlimit fees every month, with a balance of at least $600 or more. Keep in mind, that even though these people may have only purchased $200 on their card, they are still required to pay this outrageous balance due to the contract they agreed to when they filled out the original application.

It basically works like this- You have a job making good money, and decide you need a credit card for expenses, say booking a plane ticket, rental car, hotel, etc. You start to get offers in the mail for more cards, and not looking at the terms and fine print, you fill out those applications to, thinking it is no big deal, just another small monthly payment. You use the card up to the available credit limit, and make the minimum monthly payments on time each month. If you use the card for cash advances, keep in mind that you are going to pay a considerably higher interest rate than you would for regular purchases. Not all of a sudden, you have thousands of dollars in credit card debt, and the company you work for announces they are down-sizing, and that your job is one of the ones that will be getting the axe. You run off of your pension for a while, but that runs out and you still have been unable to find new employment. Now, you are having a hard time just making all those minimum payments, and keeping food on the table, and the creditors start calling. The debt continues to pile up, your credit score gets lower and lower, and the calls continue to come in, while the balances go up due to fees and default apr being charged on all of the cards. You find a new job, but it will take you years to dig out of this hole you have now put yourself in… and you look back, and ask yourself, could I have prevented all of this? Well, here are a few tips for the average consumer who relies on unknowingly gets into the credit card quagmire that may help get you out before it gets really bad.

First and foremost, on every application you receive in the mail, always pay special attention to the terms and conditions listed on the card. By law, this has to be enclosed somewhere within the application, but it may not necessarily be easy to spot. You want to really look at the area referring to annual fees, late fees, overlimit fees, finance charges, credit limit, and default interest rates. Unless you absolutely have to have a credit card and cannot do without one, try to never take a card that has an annual fee, and never one with an annual fee of more than $50 a year. You shouldn’t have to pay to have the card, especially if you have a decent credit history.

Almost all credit cards will charge late fees the day after your payment is due, most ranging from $29 to $35. If you pay everything by mail with money orders, it is a good idea to try to send your payment in the day you get your statement each month, that way you allow plenty of time for mail processing, payment posting, and will have a cushion in case the payment never makes it to the company. Always make certain that your full credit card account number is written on the money order, and that it is sent to the correct mailing address with the correct postage. Keep your money order receipt, because in the event that the company does not receive your payment, you can have it traced. If it comes back that the money order has not been cashed, the money order amount will usually be refunded to you within four to six weeks. The bad thing to this is that you will have to send in another payment to cover this one, probably before you get the money back for the lost money order. If this happens to you, it would probably be better for you to send your payment electronically by either Money Gram or Western Union Quick Collect, to ensure you don’t receive additional fees or a negative credit bureau reporting.

When mailing a check, it is still a good idea to give it plenty of time to post. The only difference with a check and money order is that if gets lost in the mail, you will not be out any money. You simply need to reissue a check. It is also easier to verify if a payment has been cashed or not simply by looking at your bank statement or calling your local branch, therefore eliminating the need to run a trace, as with money orders.

Your safest solution is to pay your bill electronically, either by the methods mentioned above, online banking, or check by phone. For those people who don’t have a checking account, Money Gram and Western Union are fast, quick options. Money Gram payments usually take around 2 days to be received, and usually will cost you around $9 to send, but in terms of late fees, $9 is better than $35 going on your credit card balance and possibly making you go over your credit limit, costing you an additional $35 for an overlimit fee. If you wait until the last minute, and have no checking or savings account, Western Union is really your only solution if you want to avoid the late fee. They guarantee the money to arrive the same day, and usually charge around $13, again cheaper than that late fee the credit card company will charge.

For those people who do online banking, this is probably the safest way to make your payment. You simply enter all of your account information, credit card account number, company name, billing address, and phone number, and then whenever you want to make a payment you just enter the date and amount and it is automatically sent out. Depending on the company you are paying and the bank you use, your payment will either be send electronically, posting in about two or three business days, or sent thru the mail by the bank, posting in seven to ten business days. Either way, you have proof of payment with your bank, and are covered in the event a payment doesn’t post to your account.

If you wake up one morning, and realize your payment is due today, you probably should call in a check by phone, as it will process that same day and post to your account, beating the late fee for you. The downside, however, is that most companies charge fees for the convenience of check by phone, ranging from $4.00 all the way to $15.00. But again, $15 being added to your card balance is better than $35.00.

You always want to stay away from your credit limits whenever possible, at least by $100.00 if you can. By doing this, in the event your annual fee catches you by surprise, or you get hit with a late fee, you can be sure you won’t be assessed the additional $35 overlimt fee.

Never send just the minimum payments if you can avoid it, it is a good idea to try to send you minimum required payment, plus and finance charges or any other fees that are charged to your card on a monthly basis. This will keep your interest charges low, and help you avoid additional fees.

Take advantage of balance transfer offers you receive, especially if they come with no fees, and no interest for a certain period of time. Just make sure that the interest rate after the introductory period is lower than what you currently pay, to ensure you are making a wise decision. By playing the balance transfer game, you can save the most money in finance charges, especially if you are able to pay your entire balance while you have the low introductory interest rate.

In closing, if you have to play the credit card game, you need to make sure that you always know what you are getting into, and constantly stay up to date on your balances, payments due, etc. If you start having problems, contact a credit consolidation company or your lender before it gets out of hand, to discuss possible solutions, before you ruin your credit and possibly triple your credit card debt. Credit cards can be a good thing, but you have to be smart, and know how to use them wisely to protect both your credit and your financial future.

The credit card trap.

The credit card trap is what I have come to call any credit card company looking for a new client. I have found myself in large debt because of credit cards, and have watched many friends and family fall into the same trap that I had. Credit cards have become the highest source of where people become high in debt. That isn’t a great thought for anyone who wants a credit card.

Some credit cards have started getting you to pre pay part of the credit cards balance before you even get the credit card. That is great because if you don’t have the money you can’t get the card. That is one thing that I like about credit cards now. But there is so much that is attached to credit cards that people don’t look into when they apply for that credit.

One trap that I have found to be common recently is the “no annual fees”. That is one of the favorite things that I have laughed about. With the no annual fees you find that if you had annual fees the interest rate would be lower. But as things are not read into that far and not very many people have accounting backgrounds I would expect that things just slide by.

Another trap is the introduction rate that creditors are offering to possible clients. By the time that the card has been used, responsibly or not, the interest rate has tripled or more. Paying out more money towards creditors. That introduction rate will not be the only rate that you get.

If the card is used responsibly, then what happens is that the credit limit increases and increases. The more you are allowed to use the more likely you are to drive up the balance and have to pay out more interest. That is the trap that is most likely to have people cringing.

If you do have the opportunity to look into the credit cards before you get them make sure that you specify the highest limit that you will allow yourself. The more that you use the card the more likely you’ll pay more to. There are transaction fees that they don’t count towards your balance until after you have paid minimum payments.

The best way that I can suggest is to stay away from the “easy” money and use cash. If you can’t afford it don’t buy it. The more that you want something the more popular that it is the more likely you are to use the credit card to get what you want without thinking about how long and at what price you are going to be paying the creditor.

Credit Cards – The Real Cost

They can be a life saver or a curse depending on how you use them. They do cost you money however if you let them get out of control and don’t manage them effectively; you could find yourself in trouble and in debt.

Self control and understanding that you are responsible for the debt that you incur is the first thing that you need to be aware of and that you will have to repay any money owing. The effect this has on your long term goals could be astonishing. It affects your credit rating and your credit rating has an effect on your lifestyle. It has an impact on your eligibility to get a loan to purchase a house or a car or any other major item. Store cards also show up on this report so if you think you can move to another location and start again, you need to know that that isn’t always the case and you may have to face the music at some later stage in your life.

On the other side of having a credit card, it can get through a rough financial patch and tide you over until the finances improve. It can get you that bargain now and as long you are aware of what you can afford to pay, it can be a lifeline. It is good to have a credit card when you don’t want to be carrying cash or when you are traveling overseas.

When applying for a card, shop around as there are all sorts of benefits that you could get such as low or no interest for a period of time, loyalty rewards and free travel insurance etc. Do the groundwork and find one that suits your needs. Make it work for you because it your money that you are spending.

Pro’s and Con’s of Having a Credit Card

PRO’s

  1. It’s easier to keep track of what you spend every month if you receive one statement with all your expenditures on it. ie: credit card statement
  2. You have a large amount of money available to you instantly for those expenses that require a few extra days to get funding in place for.
  3. You have emergency money available should you suddenly need it.
  4. If you use your credit card for all your purchases then you accumulate points or credits – or whatever promotion your card offers – faster. This could result in cash back, or reduced air travel fees etc.
  5. Credit cards allow for easier internet shopping.
  6. Credit cards often insure your purchase against breakage or theft for a limited period of time.
  7. Credit card companies monitor your spending and alerts you if your spending pattern suddenly changes.

CON’S

  1. Vigilance and control are a must to prevent over spending.
  2. High interest rates on unpaid balances ever month.
  3. If your card is lost or stolen then you could incur huge expenses.
  4. Credit card companies could suddenly ‘stop’ your card if your spending pattern changes.
  5. You sometimes have to show your ID when using your credit card.

It is up to the individual to exercise control over spending no matter how they plan to pay for their purchases. Credit cards with high spending limits are like any other means of credit. They are no different than carrying a debit card and maintaining a high balance in the bank – or a low balance and living off of a credit line.

Using Secured Credit Cards to Rebuild Credit

Whether you have no credit, slow credit, bad credit or are coming off of a recent bankruptcy discharge, getting approved for new credit can be a nightmare. Sure there are companies out there willing to lend to you, but the terms are so terrible that you find yourself back on a path towards financial meltdown. Using secured credit cards to rebuild credit allows you to limit your costs while developing your revolving credit history, all without the lender risking any money.

Here’s How Secured Cards Work

You pay a deposit to the lender to be held in trust. That deposit is used as collateral to guarantee repayment of the credit that is extended to you. If you default, they simply claim your deposit to cover the loss. For this reason, secured cards can be an excellent way to build or rebuild credit when other options are too expensive or not offered.

Most secured cards require a deposit of either $300 or $500 and then provide you with a credit card that carries a matching credit limit. You use the card the same as you would any unsecured credit card, and you make payments to repay your charges on a monthly basis. In order to benefit from your use of a secured card, you must make your monthly payments on-time and avoid charging too much to the card. Similarly to unsecured cards, if you use too much of your available credit, your credit score will suffer. Missed or late payments will also continue to damage your credit, so you must make sure all payments are made prior to the due date.

Fees for secured credit cards vary wildly. Some cards carry fairly nominal fees, while others carry so many fees that they carve up half of your available credit before you make your first charge. It is important to avoid so-called fee harvester cards, since they cost too much to justify their benefit. Fee harvester cards tend to carry lower credit limits, annual fees, monthly fees and high interest rates. A secured card with a limit of only $200 is not going to be much use to you and it likely carries predatory fees.

Choosing a Secured Card

Make sure that you compare all of the offers available before you apply. Some cards have low interest rates but high annual fees. Some charge an application fee. Those that carry a monthly fee should generally be avoided.

Also, consider how well known the card issuer is. Some shady financial institutions specialize in marketing to lower income and less educated consumers who may unwittingly apply for cards with bad terms. Look for nationally recognized products that are widely accepted.

Finally, ask what opportunities there are for conversion of your secured card into an unsecured credit card. Some card issuers will do this automatically after proper usage for one to two years. This can be a great benefit, since you could eventually obtain an unsecured credit card without a separate application and receive your original deposit back! Choose wisely and protect your credit once you receive your card.

Unsecured Versus Secured Credit Cards

Every day, you are probably bombarded with unsolicited credit card offers.  Whether they say that you are preapproved or could be instantly approved, they seem like the easy answer to money problems.  The fact is that unsecured credit cards can cause you more financial trouble than what you began with.

The term “unsecured credit card” may seem unfamiliar, but it is actually the most common type of credit card.  Just like an unsecured loan, it is not based on any collateral.  Also like an unsecured loan, this means the interest rates can be high.  Credit cards are notorious for their high interest rates, reaching into the 20s.  In fact, this is the major problem with credit cards.  If you fail to pay your bill by the end of the month, you are charged high amounts of interest for what you have purchased using the card.  This is not even including the late fees credit card companies can charge you.

The main reason credit cards are generally viewed as a bad idea is because they can trick you into spending more money than you have.  Once they do and you have spent that money, then the fees and interest rates kick in on the things you could not really afford to begin with.

While these may seem like obvious drawbacks to having a credit card, you may not know that there is an alternative.  Just like you can get an unsecured loan or a secured loan you can apply for an unsecured credit card or a secured credit card.

There can be some advantages to this path over the unsecured one.  Depending on the program you choose, the interest rate may be lower.  Also, it could fix the problem of thinking you have more money than you think you do, as there are some programs that establish your credit line as being equal to your initial deposit.  On the other hand, some allow for a credit line slightly higher than your deposit which reintroduces the problem.  This method does not eliminate the fees.  In fact, some people have run into the problem that their deposit was eaten up by fees before they could even use the card.  Just like with unsecured cards, you should shop around for the best rates and you should always read the fine print.

In general, credit cards can be a bad idea.  If you are still determined to get one, you should look into all of your options and research your choices before making a decision.

What is a prepaid credit card?

What do you do if you have poor credit or you don’t have a bank account? These items are needed for many important transactions, such as making hotel reservations or online purchases. If you have poor credit, you will be turned down quite often for loans, and any loan you receive will have a high interest rate. In a world where money transactions are primarily done electronically, it is crucial to have some sort of plastic. If you’re trying plastic for the first time, you may try getting a prepaid credit card.

A prepaid credit card is much safer than a regular unsecured credit card. You might have heard the term “secured credit card,” and, while the two names are often used interchangeably, they are not the same. They both entail actual money placed in a prepaid credit card account. To get one, you deposit an amount of money, and you can then use the card to make similar transactions as a regular credit card. On a prepaid credit card, there are no interest charges or late fees, and you will also get a monthly statement, but not a bill; therefore, a prepaid credit card is more closely related to a debit card linked to a checking account. With a secured credit card, however, you will have monthly payments, as well as interest charged on any outstanding balance.

Most prepaid credit cards will come with a small set-up fee, and some may also have transaction fees when you make purchases. There may also be fees of a couple dollars each if you use your prepaid credit card at an ATM or when you deposit more money onto the account. One specific card, the “Mango MasterCard” prepaid card, will waive its monthly fee if you deposit at least $500 per month. Some other cards, like the Green Dot MasterCard, will waive fees if you make a specific number of purchases per month. You may be able to find some cards without these fees, so shop around before getting one.

Anyone can get a prepaid credit card, but it will not actually help to improve your credit rating. A secured credit card will do the trick, so if you’re trying to get better scores from Equifax, Experian, and TransUnion, go after a secured credit card. A prepaid credit card appears to be a combination of a debit card and a credit card. It simply acts as an alternative during certain purchases where a debit card might not be accepted, like hotel or flight bookings. While a prepaid credit card may not be able to improve your credit score, it may be a way for you to learn how to manage your funds electronically, and it can be a good introduction into the hybrid world of cash and plastic.

Credit Card Fees and How to Avoid Them

Here’s how to avoid credit card fees without too much hassle.

Banks like money, fees make money, banks like fees. That’s what makes the world turn, but if you can be vigilant and avoid these fees, you’ll need to get a bigger mattress to stuff all this extra cash under. Here’s a list of the different ways banks try to drain you dry and different ways to avoid them.

Annual fees, balance transfer fees, foreign transaction fees, late payment fees…the list goes on. Most of these fees can be avoided up front when shopping for a credit card. Annual fees are the easiest to avoid, just don’t sign up for a credit card with an annual fee. If you’re looking to transfer a balance, look for a card with a promotional balance transfer period with no fee attached. Certain rewards cards that are marketed towards travelers waive foreign transaction fees altogether.

One of the easiest fees to avoid, but for some people also the hardest, are late fees. For those (including myself) that can be a little forgetful at times, it helps to set a reminder on your phone or your computer to pay your bill on time, or even better, even early. Avoid mistakes on the banks end by paying it a few days ahead of time, then there should be no excuse why your payment wasn’t processed.

Another way to get bitten by the fee bug is exceeding your credit limit. Always keep in mind where you are at with your credit card spending and try not to go over 30 percent of that number. Not only will this keep you far away from exceeding it, it will also bode well for your credit score.

And lastly, make sure the account your paying your credit card off with has sufficient funds. This might sound obvious, but always double check which account you’re paying for and with what money, because if you overdraw you’ll not only be slapped with a fee on your checking account, but a return check fee on your credit card as well.

Avoid these certain pitfalls and along with common sense, you’ll be pocketing cash instead of shelling out even more.

Five Credit Card Tips for College-Bound Millennials

It’s that time of year again. A summer full of partying, baking in the sun, and maybe even a job (heaven forbid) is coming to a close for hundreds of thousands of college-bound Millennials.

Retail companies love them because they are prepping for the big move by spending, or convincing their parents to spend, millions on MacBooks, iPods, iPhones, furniture, and the latest in trendy clothes. It’s no secret that credit card companies love them too. On-campus events are filled with local banks and credit card issuers giving away free subway sandwiches, glow-in-the-dark pens, and floating keychains just to attract their business.

You may wonder why credit card companies are so interested in targeting a demographic that statistically has minimal income and a lot of debt while in school? The main reason is these consumers are generally lifelong customers who will keep spending and spending, even when they have nothing to spend. It’s a proven fact that the first card in a student’s wallet will stay there for a very long time, and even if they do default, parents are often willing to step up and bail them out.

56% percent of undergraduates get their first credit card at the age of 18, and 91% of students have at least one card by their senior year. The average outstanding balance on undergraduate credit cards was $4,169 in 2010, and that number continues to increase at a dramatic rate each year. Add the credit card debt on top of students loans and Millennial students are beginning their lives in the “real world” in a real deep hole of debt.

The problem is most college students get their first credit card at the young age of 18, but many have never been taught how to properly manage credit and establish a solid credit score. It’s not taught in High school classes, and parents often fail to teach their children the importance of credit and its role in their financial future. There certainly aren’t any step-by-step directions in the credit card application either. As a result, tens of thousands of college graduates enter the workforce each year with a lot of debt, poor credit scores, and a rude awakening when they apply for a loan on their first car, condo, or home.

If you are a college-bound Millennial, or a parent of one, keep the following five tips in mind as you head off to freshman orientation this year. They will not only save you from headaches later on, but they will also save you a lot of money.

1. Beware of freebies with strings attached

Nothing is better than free stuff. But if you have to fill out a card with personal information before they give it to you, you’re better off moving onto the next booth. Don’t fall prey to a free sandwich that will reward you with an unexpected credit card in the mail two weeks later. You’re smarter than that.

2. Don’t sign up on the spot – Do your research online!

There are many reputable companies providing excellent cards for students at on-campus events; however, signing up on the spot is generally not a good idea. Take the informational pamphlets home with you, and then do a little online research to find the best possible card. The online credit card marketplace provides consumers with more power than ever to compare and contrast the best offers in the industry and apply securely online in about 60 seconds.

3. One card is enough

Once you have found the perfect student card, keep life simple. One credit card is enough for a college student. Set up your account online, keep your credit utilization under 30% of the credit limit, and pay off your balance each month. If your limit is too low at first, use cash or a debit card to pay for anything that would take you above the 30% threshold. When you are prepared to responsibly manage a higher credit limit, call your credit card issuer and they will likely be happy to increase your limit.

4. Imagine you never heard of a Cash Advance

If you ever need quick cash, your credit card is generally not a good option. Forget about it. Interest rates for cash advances could be up to 30%, which is highway robbery. Sell old textbooks back for cash, throw something you never use on craigslist at discounted price, or call good-ole Mom and Dad to give them the sob story. Anything is better than paying 30% on a cash advance.

5. Educate Yourself

An integral part of every college student’s education should be developing an in-depth understanding of consumer credit and how it will affect their personal financial future. Take 15 minutes to browse the net and provide yourself with an important education you won’t receive from even the best Ivy League schools.

Getting a secured credit card can build or rebuild credit

Negative information on your credit report can destroy your credit. Charge-offs, settlements, and foreclosures can stay on your report for seven years, hurting your chances of getting a low interest rate on any new loans you might get. As your settlements and charge-offs get older, their negative impact on your report shrinks. You might be able to ask the credit bureaus to remove the bad stuff, but this typically happens only when the information is incorrect. There is an alternative way to recover from poor credit other than pleading with the credit bureaus.

It might not seem logical, but opening a new credit account can boost your score. If you’re looking for a way to dig yourself out of a poor credit morass, consider a secured credit card. A secured credit card can be obtained with a deposit account. (A deposit account is an account you have at a bank, from which money can be deposited or withdrawn. Your savings and checking accounts are examples.) To get a secured credit card, you must deposit between 100% and 200% of the amount of credit for which you are asking. This deposit is held in a special savings account, which is controlled by the credit card issuer.

The good news is you don’t have to put up any piece of property, such as your vehicle or house, as collateral. The deposit you make to obtain the card is the actual collateral, so if you default on your secured credit card, the deposit will be used to recompense the creditor.

Using a secured credit card is a great way to rebuild credit because most companies report regularly to the three major credit bureaus. You want to be rewarded for handling money properly, and if the bureaus don’t get the information, then they can’t reward you. Of course, you can’t be using the card to grow a new debt. Start off with small purchases, and make sure you can pay them back in full to gain some positive history. If you maintain good credit on this card for an extended period of time, you could even gain interest on the original deposit.

There are some fees to be aware of when getting a secured credit card. There will be a one-time application fee, as well as a once-a-year annual fee, and a processing fee. If you can make timely payments over the course of a year, your creditor may give you the option of transitioning to an unsecured account, which would eliminate these extra fees.

If you have enough funds to make a deposit, and you have the ability to keep under the credit limit, a secured credit card can counteract with the negative information on your credit report. Having the patience to maintain this type of credit is a great start to rebuilding your credit history.