Credit cards could mean two things to people: a burden or the best financial tool ever.
Generally, these plastic cards mean no-sweat purchasing because one swipe means paid (at the counter), risk-free cash carrying because it is “cash” but in a more protected way, and credit score building because every credit accrued means points. These are some of the good things credit cards bring but along these privileges also come responsibilities.
Credit cards, as the word credit suggests, are tools for quick borrowing of money without the hassle of frequent loan application every time a user needs to purchase. This borrowed amount comes with interest rate but usually only after a grace period had passed and the credit card user has still failed to pay what is owed. Doing the math, it means the user has to pay the cost of his purchase plus the preceding interest rate monthly.
There are payment dates designated to which the user should pay his balance. But when he fails to do so, there are corresponding penalty charges. Therefore, after the payment date had passed, what he owes the credit card company are the balance of the original cost, the accrued interest rate, and the penalty charge. If this cycle happens frequently, his debt will keep on accumulating. This is the part then when a credit card becomes a burden.
So how to transform these cards in to the best financial tool ever?
- Pay in full before the grace period ends. If the user is disciplined enough to purchase only what he can afford to pay then it wouldn’t be hard to repay the whole amount of the purchase. He can buy as many as he want but he should make sure the amount is lesser than his whole months pay. A grace period usually extends 15 to 30 days after the day of the purchase. After which, payday would’ve come by then.
- Don’t wait for the due date to pay the bill. As soon as the statement comes, it must be paid directly to the bank or by sending a check. With the wonders of technology, payment can even be made online or by phone. This is the best way to avoid late payment charges and delinquency reports on credit ratings.
- Do not use credit cards so often. Why “borrow” when one can pay in cash? This way a user will be able to discipline his self from excessive buying and he can keep greater track of his finances. If it can’t be afforded, he should save up and buy it when he has the money. It’s as simple as that. If he reasons out, “I need it urgently…” do so but refer to the two steps above.
Sean Teahan co-founder of
Cash Doctors,Australia’s preferred short term lender, shares his insights on money matters. Founded in 2005 Cash Doctors has helped thousands of Australians with their fast
cash loans but that’s just the short term solution. Cash Doctors also help people in the long run by providing budgeting tools, e-books and individually researched
articles on money matters and financial tips. The aim is to assist people in achieving instant and long term financial freedom.