Help With Credit Cards

Credit Responsibilities

Part of owning a credit card is knowing your responsibilities and making sure you can meet them. Credit is not free money, in fact, it's the very opposite - very expensive money (if you don't pay off your balance on time). That's why it's important to keep a close eye on your bills, and whatever you do, pay off your full balance each month if you can. Always prioritize your debts and pay off those with the highest interest rates first. One major exception may be your home mortgage, as the interest on that is tax deductable, but for most it makes sense to pay as much as you can and still have an emergency fund left over.

Credit Card Basics

A credit card is a contract of sorts between you and the bank who issues you the account. While it might seem a little one-sided in that the bank makes the rules and can punish you severely if you don't keep up your end of the bargain, it is not all bad news. For individuals who can pay off their debt in a timely manner, a credit card can provide huge benefits such as airline miles, free gasoline, cash rebates, and other rewards. Ironically, the best way to capitalize on these bonuses is to keep the banks from making money off of you.

How Banks Make Money

Banks make money off of credit cards in two ways. First, in every transaction, they charge the merchant, also known as the seller, whether it be a clothing store, a restaurant, or any other place you spend money. The seller is on the hook, usually for a transaction fee and a percentage of the final cost. So regardless of what you do, the bank will get their money. Sound familiar? Now, the other way the bank can earn is by tackling the other side of that equation. They can also squeeze money out of you, the buyer, if you don't pay your bill on time and face an account balance that carries over from month to month. In that instance, they'll begin charging you interest on that amount, and in effect, you'll be paying a lot more than you originally thought.

Help Yourself

If you need to make a purchase and you know you'll not be able to pay it off at the end of the month when the bill arrives, stop and think for a moment. Ask yourself if you really need the item, and if so, is it worth it. Then consider making the purchase at a store that offers a deal such as not paying interest for a number of months, or a financing plan that can give you a lower interest rate than your credit card. Just because you need to spend money you don't have doesn't mean you should be trapped under a mountain of debt. Find the best terms for your loan, since often the interest rates at a credit card are far more than you'd find at the store from which you wanted to make your purchase.