Play your credit card right
Theyíre so easy arenít they: credit cards? It lands on your doormat, 85.60 x 53.98mm of pure spending power, emblazoned with your chosen design of a Capybara set against the inimitably imposing landscape of the Amazonian rainforest.
The first thing you should do if you are considering taking out a credit card is to establish why and to be honest with yourself:
This little maxim is important when considering any financial undertaking, and is especially crucial when thinking about revolving credit. Hang on: revolving credit? Revolving credit is a type of borrowing where you can borrow up to an agreed limit, but without a set term to repay in. Whatís more is that you can pay back money and then borrow it again without further approval. Examples of revolving credit include overdrafts and credit cards. The revolving bit? Well that relates to the now outdated practice of credit cards being marketed in a rotating display cabinet (much like those cake stands you see in a lot of cafes and bistros)!
The thing with revolving credit is you need to be disciplined with yourself. Have you previously used up the credit limit on your overdraft or credit card? Have you been switching your balance between credit cards for years, paying a little off, then spending a little, never actually seeing the balance go down? All the tips in the world wonít change this if you canít stick to a budget. Consider perhaps another type of borrowing such as a personal loan. Yes you may end up paying more in the short term, but at the end of the loan the money is repaid (if you do this cut up your cards afterwards so you remove the temptation to spend again).
What do you want from a credit card?
Take time to seriously think about what it is that you want from a credit card. You may want one so you can transfer the balance from another card, you might want to have one for an emergency, you might have a big purchase in mind (not a Capybara though Ė they are controlled animals. If youíre found with one it will be confiscated).
So, now you know whether you want a credit card and, if you do, what you want out of it. There are many different features, to meet many different needs:
Most credit cards will allow you to transfer a balance from another credit card, so obviously this feature is suited to those who have previous balances that are on higher rates of interest. Some providers will offer a 0% balance transfer deal for a set period in order to encourage you to transfer. You should use this opportunity to reduce as much of your debt as possible while you are only repaying the money you borrowed, and not any interest. Some other cards will offer a lifetime balance transfer rate which is usually lower than that charged for purchases. With cards offering enticing balance transfer deals there are three things you should be aware of:
As with the balance transfer, some cards offer a 0% interest rate on purchases until you reach the end of an introductory period. This could be suitable if you wish to make a big purchase, and can repay it quickly during the introductory period. Bear in mind that at the end of the introductory period, the purchase rate on the card will shoot up for any balance you have remaining, as well as future transactions.
Credit cards will allow you to withdraw cash. The simple rule here is: donít withdraw cash using your credit card! It attracts exorbitant fees and interest from the card provider. You should reserve taking out cash on your card only for emergencies. I had one instance a couple of years ago when travelling through Walthamstow. I chanced across an injured Capybara in the road. I took it to the vet who wouldnít accept card payment, so I had to go to the nearest ATM. Unfortunately a blood transfusion for a Capybara is rather expensive (the programme in Peru to attract donors had met with little success as Capybaras are, by nature, quite selfish). Needless to say Iím still paying it off- definitely a mistake I wonít be making againÖ
You can normally use your credit card abroad. However, if you do there will usually be a foreign usage charge applied which could be as much as 3% and, if you take out cash as well (havenít you read the tip above!), then there may well be further charges on top! Having said this, you get added protection from using your credit card over cash if you need to get a refund or replacement, and some providers even specialise in not charging foreign usage fees at all.
Now all you need to do is make sure you get the best credit card available in the market!
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