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Understanding Credit Cards
Almost every person in America has a credit card. Those that don't are receiving the offers. Yet, very few people truly understand credit card debt.
Credit cards are unsecured, revolving credit. This means that there is no collateral at stake, just your credit. The debt is revolving, meaning that you have a credit limit that you can charge up to, pay down and charge up to again.
To counter the risk that the credit card company takes by offering you an unsecured loan, they attach high interest rates and even higher rates if you default. There are also numerous penalty fees, such as late payment fees and overlimit fees. Most credit card companies reserve the right to increase your interest rate at any time and for any reason. If you miss a payment on just one card, chances are that you will see all of your cards increase their interest rates.
If you have a good credit rating, you will get tons of credit card offers in the mail. Most carry no annual fees and reasonable interest rates. The grace period may extend up to 30 days and the initial offers are usually at zero percent for at least six months.
If you have less-than-perfect credit, you may find that you need to pay an annual fee for a credit card. The fee is usually between $20 and $40. You will also have higher interest rates and fewer initial offers. If you take the time to read the fine print, you may notice that your grace payment on charges may only be 20 days.
If you have awful credit, you will probably only be able to get a secured credit card. With a secured card, you make a deposit into an account that will be the collateral in case you default on your credit agreement. This card usually has high interest rates as well. However, secured credit cards are a good first step at establishing or re-establishing credit.
Credit cards are not bad things. They just contribute to bad decisions. It is easy to just charge and pay for it later. However, many people charge more than they pay. Over time, the principal balance piles up until they are over their heads in debt.
Carrying Around A Credit CardThere was a time that money had to be brought out form the wallet to buy certain items at the store. Since the purchasing ..... Read your monthly statement closely. Your minimum payment is just slightly more than your finance charge. You aren't making a large dent in your balance. You can pay on a $5,000 debt for ten years before you get it paid off. In the long run, a $300 shopping spree will cost you $1,000 to pay back.
The best thing to do is stay away from credit cards. Most people won't. If you have to have a credit card, make sure that you pay off the balance each month. If you don't, you need to put that card in a secure place -- like a safe deposit box at the bank -- and forget about it until the balance is paid in full. This will help you stop charging while you pay off your balance.
You have to use credit cards wisely. They are so easy to get and easy to use that we forget how hard they are to pay off. We think, I'll charge it this month and pay for it when I get that raise. But things just continue to pile up until you can't even make the minimum payment anymore. Instead of paying for something for the next 10 years, you could simply put the same monthly amount in savings and save for it for two years or less. Think about that before you use that credit card again. It is costing you more than you realize.
Martin Lukac http://www.MartinLukac.com , represents http://www.RateEmpire.com , an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com
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