Having credit cards explained, that is understanding what is right for you and choosing the credit card to meet your particular needs, is important whether it is your first credit card or your 100th, whether you are new to credit or rebuilding after a life event. But with so much information out there telling you to apply for this card, ignore that card, forget credit cards altogether and everything in between it can be hard to sort out the right move for you.
So let’s cut to some of the most important issues. Following are four things about credit cards explained that you need to be careful of when choosing a credit card:
High interest rates get a bad rap, don’t they? You hear it all the time, that you should look for low rates, avoiding high rates at all costs. Obviously, when you borrow money you would rather pay as little interest as possible – less interest paid is more money in your pocket. This makes 0 interest credit cards sound great. And certainly interest rate should be one consideration when you shop for a credit card. However, depending on your situation a “high” rate might be relative. If you have poor credit it may be costing you money in car insurance premiums, life insurance premiums, mortgage insurance and interest rate and more. A poor credit score could cost you thousands of dollars a year! In this case, building up your credit to get better rates in the future might be worth it, even if you have to pay a higher rate now.
Specialty cards, like student credit cards or retiree cards, can be a good way to save you money. When you choose a card like this it might have better rates, better terms and some bonuses that suit your life. But then again, just because a card says “student”, and you’re in college, doesn’t mean it is the best choice. compare the terms to other cards and make a decision based on your needs, not a cute card or title.
Obviously you want to avoid fees. You will be best off with no annual fee, no late fee, no monthly fee, no over the credit limit fee and so forth. But this isn’t necessarily reasonable. If you have good credit then, by all means, look for a card with no fees. However, if your credit is less than stellar you may have to be willing to accept some fees until you rebuild. Some fees are worth it. It’s not uncommon when rebuilding your credit to have a $79 a year annual fee. But watch for excessive fees. While some fees might be the price you pay to rebuild, but avoid cards with an application fee, acceptance fee, or where all the fees together exceed $79 a year – you can do better.
Creating debt is not what a credit card is designed to do. ABC News reports that as of 2012 more than half of Americans owed more money in credit card debt than they had in any emergency savings. Having debt of this magnitude is dangerous. Spending is fun. Building credit is good. But planning for the future is paramount. If you need credit cards explained, if you don’t understand credit, continue to do your research. Do not use your credit cards to spend money that you cannot afford to spend. Buy things that you need, that you would have bought even if you had to pay cash. Be a knowledgeable user of credit. So how much credit card utilization is right? Just enough to keep them active; definitely keep all balances under 30%.
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