What are the benefits of having a credit card?
A credit card makes it easy to buy something now and pay for it later. It's much safer to use a credit card than to carry around cash. If you lose your credit card, you can ask your credit card company to cancel your card, and no one else can use it. But if you lose cash, your money is gone.
Credit cards are also convenient. You can use them to make hotel, car rental and other reservations. You can buy items over the phone or online. You can also use credit cards for emergencies, like unexpected car repairs, when you don't have the cash to cover the expenses.
Finally, using a credit card gives you a credit history, which helps to get home loans and other credit in the future.
What are the costs of having a credit card?
All credit cards have finance charges for not paying your balance in full each month, but you could save a lot of money by shopping around for the credit card that offers you the best terms. Key credit card terms to look at are the annual percentage rate (APR), annual fee, grace period, and late payment charges.
Shop for a card with a grace period that gives you enough time to pay your bills on time without charging you interest. Credit cards with no grace period start charging you fees as soon as you buy something on your credit card.
Where can I get a credit card?
Your mail is probably full of credit card offers from national companies. Most local banks and Community Development Credit Unions (CDCUs) offer credit cards as well. The fees, charges and benefits for credit cards vary among different companies. When you're choosing a card, shop around. CDCUs often offer the best rates and lowest fees, since they are not trying to make a profit like credit card companies are.
Some large department stores also offer credit cards that only can be used in their stores. Usually, when you apply for a store credit card, you get a one-time discount on your purchase that day. But these credit cards have limited uses and often carry high finance charges.
Credit Card Debt Can Add Up
Say you have charged a total of $1,500 on your credit card (this is not hard to do, if you use it very often). Many credit cards have high interest rates, such as 19.9%. If your minimum payment each month was $30, it would take you more than 25 years to pay off your debt! Even worse, you would end up paying a total of $6,000 even though you only borrowed $1,500!
If you doubled what you pay each month to $60, then it would only take 2 ½ years to pay of your debt and you'd pay only a total of $1,900.
Controlling your debt
Most people have some kind of debt. Either they have credit cards they are paying off, they are financing a car, or have a personal loan. A certain amount of debt can often be necessary, but too much can cause major money problems. In this section you can find out how to get your debt under control.Here are some steps you can take right now to improve your situation.
- Stop spending money you don’t have. If you keep spending, you’ll dig yourself into a deeper hole. Think about your budget. If you don’t have one, now’s the time to make one.
- You don’t have to do it by yourself. If you’re behind in your payments and can’t pay your current bills, call a credit counseling agency right away. They’ll contact your creditors, explain your situation, and work out new arrangements.
- Make the minimum payments, on time. Make the minimum payments on time, if you can’t pay the balance in full. Work with a credit counseling agency if you need help.
- Get help repaying your debt. Non-profit credit counseling agencies can really help you get back on track. Don’t use agencies that charge for their services and spend a lot of money on advertising. They usually charge very high fees.