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The Right Way to Use a Credit Card

The Right Way to Use a Credit Card

Credit cards, like most of life’s conveniences, can be tools or traps — depending upon how you choose to employ them.

Remarkably, some people will actually pay more for an item with a credit card — even before you factor in the interest charges — than they would if they were paying cash. It’s as if people look at credit cards as somehow being something other than “real” money.

With that in mind, there’s absolutely a right way to use a credit card and a wrong way. Let’s take a look at the former, so you can avoid the latter.

Pay the Balance in Full Each Month

Every credit card agreement includes a grace period, during which charges can be paid off interest-free. If you make it a habit to charge only what you can afford to repay each month, you’ll build up your credit rating while avoiding interest payments.

Doing so also frees you of concerns over late fees and over-the-limit fees. Both of these, when added to your outstanding balance, will generate interest charges of their own. Suddenly, you’re paying interest on fees, plus interest on the interest, plus interest on the balance you carry from month to month.

And, this is exactly how a credit card gets out of hand.

Review Your Statements

Reconcile your bill each month as if it were your checking account.

Do so, even if you “know” you have no outstanding balance.

Phantom charges have ways of appearing on your bill. Identity thieves may have gained access to your account as well. Similarly, there will be leftover interest due if you paid your bill in full but inadvertently missed the cutoff date.

Each of these circumstances can mushroom into expensive problems if you ignore your statement because you think you have a zero balance. Interest charges will accrue if issues are left unattended month after month.

Look at your bill — even if you’re certain your balance is zero.

If Paying in Full Becomes an Issue

Pay whatever you can to make the balance as low as possible. Interest charges are based upon the amount you owe. The less you’re indebted, the lower the additional cost will be.

If at all possible, avoid getting into a situation in which you can only make minimum payments. These are designed to extend the duration of your debt to maximize revenues for the card issuer.

If things go very sideways and making the minimum payment becomes beyond your ability, try to work out a deal to reduce the interest you owe. You can also ask to have fees waived and — in extreme cases — some of the principal reduced too.

You can sometimes accomplish this on your own, but companies like Freedom Debt Relief can help — handling negotiations and answering any questions you have along the way. Doing settlements every day, they know who to call and what to say when they get creditors on the phone.

Avoid Frivolous Charges

Having access to several thousand dollars of “extra” spending power can tempt you to buy things because you want them, rather than because you need them.

Impulse shopping has maxed out many a credit card.

While we’re on this subject, resist offers to increase your credit limit — particularly if you carry a balance from month to month. This will only give you more rope with which to, well, you know.

Long story short, the right way to use a credit card entails looking at borrowing for what it really is — a tool that can very easily become a trap.

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