In order to understand how to steer clear of the potential problems credit cards may cause, you have to ask yourself, what is a credit card, and then gain full knowledge of how credit cards work. If you know the way the credit card industry operates, you’ll be better able to handle your credit intelligently and you’ll maintain a high credit score that you can use to your advantage if you need to get a loan.
What Is a Credit Card?
You usually have about 30 days to pay off the total amount you owe your credit card issuer. If you don’t pay off the debt in time, you’re subjected to late fees and interest fees, which are added onto your account and you must pay off in addition to your original debt. If you fail to pay off the added interest and fees, you’ll receive even more fees the following billing period, in addition to your old debt plus any new debt you accrued in that time period.
Tips for Using Credit Cards Intelligently
Understanding what a credit card is will help you use your credit card in a smart way so that you can avoid all those late fees and pay your bills on time.
- Know Your Expenses and Your Income: How much do you make each month in income, and how much do you spend each month in expenses? It’s important to know exactly how much money you have coming in and how much money you have going out in the form of payments for essentials, such as groceries, as well as payment of bills for your home. Curb your spending so that you don’t charge more money to your card than you have coming in as income. This is a sure way to avoid going into debt.
- Keep Your Credit Cards to a Minimum: With each credit card you receive, you will have a specific credit card limit. The more credit cards you have, the more potential debt you can incur if you use all of them because it makes it harder to keep track of your expenses. Keep your credit cards to a minimum and avoid hitting the credit limit unless you know you can afford to do so.
- Know What Your Line of Credit Is: Be aware of what your line of credit is on each of your credit cards. In this way, when you go out shopping, you will know that you cannot make large purchases that exceed the credit limit on the card. You also want to make sure you are aware of how much you have already charged to a card so that you do not continue using it even after you have hit the limit.
Now that you know what a credit card is, you can use it with confidence, knowing you will not be making any of the common mistakes that land people in trouble with debt that they struggle to get out of.
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