Use of credit cards will not disappear but consumers have found credit accounts can be dangerous if used to make purchases without a plan for paying the bill when it arrives.
The biggest lessons are learning to manage debt in a way that provides you with cash flow to buy what you need while using the grace period on the account and budgeting your income to be certain you pay your monthly credit card statements on time.
Five Essential Lessons…
1. Know your credit card rates and fees
Interest rates on credit cards have risen sharply since new credit laws to regulate lender practices were announced in late 2008. If you had excellent credit, you might assume your rates would not change.
In truth, many consumers saw their APR increase from 10%-12% to as high as 29.9%. Until recently, banks did not need more than a vague “higher risk” excuse to raise your APR.
2. Understand changes in the laws
New credit lending laws took effect in 2010. These laws are meant to protect consumers from predatory lenders.
Many of the provisions do that by limiting how banks can increase interest rates and prohibiting a permanent increase in the APR on past balances.
At the same time, lenders can now increase your APR to a high penalty APR for six months if you are late on a payment, have a returned check or miss a monthly payment.
Six months of timely payments can remove the penalty but during those months your monthly payment may be tripled which can cause financial hardship if you carry high balances.
If you had good credit in the past and forget to send your payment or had a financial emergency, your lenders were often willing to work with you.
They would waive late fee penalties and allow more time for you to pay or even allow you skip one payment without damaging your credit or your account.
That is no longer the case. The increase in regulation means credit card lenders will follow the laws to the letter. Make one payment two days late and you may find your interest rate changes from 15% to 30% for the next six months.
Fees are not waived even for those with excellent credit in the past so consumers need to watch due dates and spending limits more closely than in the past.
3. Use credit cards for planned purchases
Credit cards are so easy to use. If you find yourself pulling out a credit card for every purchase, large and small, there are lessons for you to learn.
You may designate one credit card to be used for daily purchases of foods, fuel and entertainment. This is good money management only if you have the funds to pay for those purchases in the grace period allowed by the lender (usually 21-25 days).
Paying within the grace period means you will not be charged interest on those purchases. For those with the self discipline to stick to their budget, this is a great convenience when you shop.
Big box stores and large furniture manufacturers often run special sales that allow several months to pay without interest charges.
Some experts who write about lessons and tips on credit cards advise consumers to avoid branded department store cards. However, if you need to buy large appliances and those items are on sale, using the merchant’s credit card can be a money saver.
4. Compare everything before applying for a new credit card
The interest rate is no longer the only aspect to consider when applying for a new credit card. Today there are banks offering introductory interest rates, waiving annual fees, and providing bonuses and reward programs.
Comparing all of the terms and conditions of available credit offers will allow you to obtain a new credit card that will provide maximum benefit for your lifestyle and spending habits.
5. Check and recheck your credit accounts
Change has become the standard for credit card accounts today. If you receive a notice by mail or email from your lender, you need to read that message.
If the lender is changing the interest rate on your credit card, you will have a period of time to decide whether you will continue to use that account.
If your current credit cards have become high interest accounts, you may need to pursue a new account with a better APR or introductory low interest rate. By transferring high APR balances to a new account you can pay down debt quickly.
Summary
The five essential lessons can by summarized as “pay attention”. When you know what your credit card rates and terms are you can use those facts to your advantage.
The biggest lessons are simply managing your credit debt just as carefully as your bank account balances. I also recommend you to further explore this site and read our useful tips and strategies on how to avoid bankruptcy as well!
