You probably already know a lot about credit cards. You’ve heard that consumer debt in this country, particularly credit card debt is at an all-time high, while we’re saving less than ever before.
You must also realize that the boom in online shopping, with it’s absolute dependence on credit cards, is further fueling their use.
Running a balance on your plastic and paying the insane interest rates that come with them are one of our most basic and widespread financial blunders. And you suspect that the sheer volume of direct-mail credit card solicitations, with low teaser rates must be devastating the forests of northern Idaho.
Still, credit cards are a fact of 21st century life, and it only makes sense to understand how to use them sensibly.
While it’s probably not practical to keep all plastic out of your wallet, it’s sensible to limit the number of cards you have, and, of course, to pay all balances in full every month.
Having only a traditional American Express card, which doesn’t allow you to carry a balance, can be an excellent way to impose some financial discipline on you and your family, although, as the Visa ads point out, not everyone accepts American Express.
For the rest of us, who do occasionally dabble in credit-card debt, here are a few ways to keep your plastic spending habits under control.
1. Take advantage of frequent flier programs tied to credit cards, but keep in mind that interest payments on a high balance can quickly turn “free” flights into outrageously expensive ones. At a dollar per mile, running up a debt of $25,000 can get you a plane ticket, but it will also saddle you with $4,500 in yearly interest payments, assuming an 18% annual rate.
2. Look very closely at credit-card offers before you sign up.
Obviously, most of those 2.99% and 3.99% rates will only be in effect for a few months, but there may be other catches as well.
Making a late payment, even if it arrives only a day after it was due, can immediately trigger a permanent rate hike.
Also, low initial rates sometimes apply only to transferred balances, and you could end up getting charged a fee for making the transfer.
Also, check to see if there is also an annual fee, or charges for exceeding your credit limit, or even for closing an account.
3. Avoid amazing grace period tricks.
What you’re looking for is a provision that says you’ll never be charged interest as long as you pay your bill in full by the due date. But some cards have no grace period, calculating interest from the moment you make a purchase, while others give you only a limited time after making a charge before interest is imposed. That period of 20 days or so may end before your payment is due.
4. Don’t forget to cancel cards you no longer use.
If you don’t cancel cards that you don’t use anymore, they’ll show up on credit reports, and that could be a problem, particularly if you’re applying for a home mortgage. Your would be lender could be reluctant to make a loan to someone who has a cumulative credit card limit of $50,000, $100,000, or even more.