Creditophobia - Credit Cards and Credit Card Deals to Be Aware Of

Credit Cards make buying things easy.  This convenience may lead to debt.  Below are some caveats to be aware.What may look like credit cards deals may actuall be credit card mistakes  From credit card protection plans to credit card interest rates, know what you are getting into before you cost yourself unnecessary money.

• Some credit cards offer you  a payment protection plan  that will  suspend your minimum monthly payment for a set period of time if you lose your job, become hospitalized, or have a major life event like marriage or divorce.  The cost seems like a small amount, perhaps 1% of your ending billing cycle.  Credit card deals like this, are not deals at all.  Banks like to promote these type of insurance coverage because it is very profitable for them, and you end up paying hundreds of dollars a year  to protect yourself, or so you think.  The bank will charge your credit cards monthly, and yet, you might not even qualify if you need the protection, and you may not even need this kind of credit card deal.  They used to be called credit insurance.  Now they are called credit protection.  The newest buzz words are called debt cancellation. These are renamed to sidestep federal regulations that are on the look out for these consumer incentives that do not qualify as true insurance coverage. Check your credit card statements carefully. Sometimes you could have inadvertantly signed up for it. Call your credit card company immediately if you want to opt out of it.   The bigger your balance, the more you pay, so usually the people who buy these credit protection agreements are the ones who can least afford it. If you pay interest on your credit cards, you will also be paying interest on this kind of protection.  Buyer beware!

• Credit cards help us  buy things.  It is important to avoid buying unnecessary things. It is very easy to overbuy or buy things because they are on sale or because we convince ourselves we need it, or believe we deserve it. Credit cards make buying on the internet easier.  Buying things on impulse is a matter of self control and posing some logical questions before you make the purchase. The urge to buy is easier when we are using our credit cards.  Buying with your credit cards means paying later, and makes purchasing much easier.  If you don’t pay your credit card in full, what you are buying will cost you much more money in interest, and you may not finish paying for that item for years. If you really don’t need the item, you will be wasting your money and compromising your future opportunity for saving and spending on other more necessary things.

• Credit cards can give you the luxury of buying a big ticket item without worryin about carrying a lot of cash around, or having to use your checkbook. Research before you make a major purchase. Know what you are buying, what your options are, what the item has to offer, and how it compares to its competitors, among many other things to research. Of course you also want to know where the best place to buy it is, and how you pay for it.  Paying with credit cards when you make a major purchase is actually a good idea. Credit cards offer additional protection should you encounter an issue with the item.

t may be tempting to apply for many credit cards, but too many credit cards can hinder your credit score also.  Ideally, 2-4 credit cards, whether they are major credit cards, or store credit cards, gas credit cards, etc. is sufficient.  Too much credit outstanding, even if there is nothing on the cards, even if you don’t use the credit cards, still count against your credit score and could make a loan more costly for you.

• Credit cards charge steep interest rates. Pay off your credit card balances each month.  It is never a good idea to not owe money on your credit cards.  The interest is high and the payback rate is designed to be long term, so you end up paying more in interest than the original purchase.

• The immediate gratification of  buying something comes with  the inevitable   monthly credit cards payments.  Look over your bills and statements carefully to make sure there are no unathorized charges. Try to pay more than the minimum amount. Every little bit will help you pay less interest.

• Some credit cards offer a low introductory rate. B e aware of when the offer expires.  Read the fine print in your agreement from the credit cards.  There is a saying that the “devil is in the details”. Banks are in the business to make money.  Credit cards make banks a lot of  money, and they intend to make it from unaware consumers. Arm yourself with information and knowledge so you can protect your own money. Read and understand the agreements from the credit cards.  Ask the bank to explain, if there is something you do not understand.

For a little bit of trivia:  Banks used to only reward their best customers with credit cards. They would charge a set amount of interest, usually about 20% yearly.  In the 1980’s many states changed their banking laws and as credit rating scores became more readily available, credit cards were created with varied interest charges. They connected these fees to the credit worthiness of the user of the credit cards.  As a result, interest rates went lower for good credit consumers and went higher for those whose credit was not as good.  Banks profits began to increase greatly.  And so started a genius formula for marketing credit cards and creating great profits for the banking industry.  Today, even people with excellent credit, have to be aware of shortened payment cycles and hidden credit card fees and increased interest charges.  The federal government has stepped in to protect consumers, but being credit wise is your best bet in handling credit cards.

Credit cards can be a convenience when managed with common sense and education about the nature of credit cards. Good credit habits will serve you well for a lifetime.  Little by little you can work at reducing the amount you owe on your  credit cards.  A little discipline now will give you more freedom later on.  It is hard to do, but anything worthwhile is difficult. The more of a habit you make to pay your credit cards on time, and pay as much as you can, the easier it will be in the long run. Spending may be fun now, but debt never is. Stretch yourself to make changes for the better. Be diligent and determined and you will have the financial freedom you desire.   Good Luck, and Good Savings!