Credit cards are one of the surest ways for getting into irreversible debt but they are also great financial tools with responsible use. Many consumers use credit cards daily and there are plenty of ways to save money with credit cards if you understand how credit cards word and apply self discipline to your spending habits. Some of time-tested ways in which you can still use your credit card and manage to put some cash in your pocket are.
Credit Card Reward Programs
Credit card reward programs can save you money and accumulate free rewards at a later date. In fact, credit cards with reward programs are the most popular types of credit cards issued to American consumers. How reward programs work is they offer the cardholder certain rewards for using their credit card to purchase items or to make payments. These rewards can come in the form of cash back rebates, airline points, hotel points, travel discounts and more. The nice feature is the more you spend the more you get although this also can pose a problem with people who like points more than cash.
Transfer Balances
Balance transfers to a credit card are a great option for consolidation high interest short term debt. Very few credit cards offer very low balances for the life of the transfer so its important to read the fine price of any ZERO or low percent balance transfer advertisement. If you have a $5,000 loan at 12% its certainly sounds great to transfer this debt to a no interest credit card but if the term of the promotion is only six months or a year the you will only have a higher debt soon.
You also want to pay particular attention to the fees and rules of balance transfers. Many balance transfer checks are considered a cash advance and come with a fee that can be up to 5% or more of the balance. Sure, you get zero interest but have to pay to do so.
Another source of trickery from the credit card companies is if you are one day late with a payment they may just boost your payment up to much higher than your previous interest rate. It’s not uncommon to be a day or two late but can you really promise yourself you always pay on time?
Lately, due to the economic challenges of late, most credit cards tend to have increasing interest rates. Since credit card companies are a private business, they have many ways in order increase their profits. The credit card company’s use an array of “gray area” business practices in order to achieve their goal of making money, one is by increasing your interest rate the other by hidden fess and charges.
To ensure you save money with your credit cards, always try to stay on top of what the card provider’s policies contain regarding interest increases. Changes to your card can and will be done at any time, without your prior consent.
Here are 4 ways consumer credit card interest rates increase:
Missed Payments: This may not be your situation. Due to others not being as responsible as you are means the credit card companies have to recoup their losses by increasing different tiered users interest rates.
High Credit Balance: Aside from monthly payments, credit card users have the option to pay down their balances within a month. Many borrowers very seldom pay down theses balances, and this results in super high finance fees. Individuals who continuously maintain a high balance will see interest rates go up on the card. To protect yourself against this, it is best to only spend up to 10% of your credit line. This will not only result in a lower interest rate on your card, but also raise a credit score.
Credit Score: If your credit score drops, the rates on other variable interest loans you may have, almost always go up. This means loans in another area can affect your credit card interest rate.
For example, if you miss or are 30 days past your due date on your car loan, your credit score will drop. This in turn will appear on your credit report and cause a snowball reaction. The credit card companies will be alerted to a change in your credit score. They, in turn, will raise your interest rates because you may now fall into the category of High Risk borrower.
Federal Prime Interest Changes: At this moment you are probably about as tired of hearing about “The Fed” as I am. Unfortunately they affect more of our daily spending lives than we imagine. The Federal Reserve determines and sets the “national prime interest rate” periodically throughout the fiscal year. This rate is what lenders (Banks) charge other lenders (Credit Card Companies), and rate changes are designed to help contain inflation and stimulate lending. You as a consumer have zero affect on this rate but it will affect your in the following way.
If “The Fed” determines the prime rate needs to be increased, the credit card companies have to adjust their interest rates to pay their bank from which they took money in order to provide you credit. You as a consumer will be paying their bill. Banks need to keep retail rates higher than the rates they are spending to finance their own financial growth. It is a vicious circle and not being aware of how the system works, will only get you into trouble.
Hidden Charges and Fees: The devil is in the details. You have to read the fine print of any credit card companies application and terms of service documentation. If you do not do this you may lose hundreds of dollars. Such items to be aware of:
- Late payment fees
- Credit transfer charges
- Interest increment procedures
- Annual Fees to keep the card
- Time limits of reward point use
Saving money with credit cards may seem the most tedious thing to do but it is nothing compared to feeling like you are drowning in credit card debt. Due to the eccentricities and obligation of our everyday lives, doing without a credit card may not be an option. However, by following the few guidelines above, it is at least possible to save money with credit cards, gain some financial discipline and maintain a good financial quality of life.
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