5 Things to Consider Before Using Credit Cards

5:56 PM Cindy 3 Comments

Credit cards and credit in general can be scary for some people! Being informed before you make any rash decisions, like signing up for a store credit card for that flash sale discount, is very important. Remember that knowledge is power and with the right knowledge credit cards can be a great tool for you. You can collect points, build your credit score and get those awesome discounts and rewards as long as you’re responsible. Below are five very important things you should consider before starting to use a credit card.

1. Understand the Terms and Conditions

We all like instant gratification and we tend to rush into things without fully reading all the details! Don’t do that with credit cards because it can really hurt you later on. Grab your magnifying glass because you may need it to read the fine print on the applications. According to Credit Card Insider, “This is where you’ll find the hidden fees, interest caveats, like balance transfer fees and rates on cash advances and international charges. Also buried here are the details on blackout dates and exclusions.”

2. How Much Does the Card Cost?

If you’re responsible and get a card that has no annual fee, the ability to use credit to your advantage will cost you nothing! If your card has an annual fee of say 1,000php though and you carry balances month to month, you could easily be forking over several hundred or more a year to the credit card company. Make sure you factor in your interest rate and any annual fees for the privilege of using their card.

3. Cash Advances are Dangerous

It’s money that can be accessed in a pinch, but it’s definitely not free! Your cash advance feature on most credit cards allows you to withdraw money at an Automated Teller Machine (ATM) but it’s often tied to an entirely different interest rate. This interest rate can be drastically higher than your annual purchase rate. Use this feature with extreme caution and only in emergency situations.

4. Know Your Credit Limit

If you’re new to credit cards, chances are you have little to no credit history. If that’s the case you’ll likely be given a small credit limit of around 15,000php to 30,000php. This isn’t bad because it allows you to start small and be responsible. Your credit score however is calculated by your repayment history and how much of your credit you are currently using compared to how much is free. If you pay off the entire balance every month you don’t have to worry, but if you carry a large balance each month (e.g. 75% of the limit) this can hurt your credit over time.

5. Credit Cards Are a Tool

It’s important to remember that credit cards come with a lot of responsibility and are a tool for you to use. It’s easy to abuse them and you can find yourself in trouble very quickly through impulse buying and worrying about balances later on. Use credit cards as a tool to reap rewards and other benefits and be responsible with paying on time and keeping balances low. If that’s your mindset you will have no problem racking up points and using them to your advantage.

What about you? Do you have any tips before considering to use credit cards? Share your comments below!

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3 comments:

  1. I love reading your thoughts about using credit cards. For me, what made me to like it is whenever they offer me a cash installment, I will not think twice to grab it. Why? Because the interest they will put on your monthly fixed installment is lesser than 1%. Let's say they granted you a 10 thousand pesos loan as cash installment and you will pay for it for 12 months including interest rates. If you total your overall loan plus the interest, you'll only pay more or less 11 thousand pesos. That's not bad if you're going to use the loan money to start a business or to improve yourself when it comes to money because for sure you can use the extra money you will earn from your new business to pay the monthly amortization.

    Also, I agree with your other point that we should be wise whenever we use our credit cards. Keep writing useful posts, Cindy! :)

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    1. Thanks for liking the entry Jet!

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  2. Agree ako sa #5. Credit card is a tool, as long as you use it responsibly you'll be able to reap the rewards & benefits they offer. Galing mong magsulat sis!! God bless...

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