What you need to know to apply credit card
Credit cards can offer a convenient form of payment or a quick way to get cash. But deciding on whether a credit card is necessary depends on how you plan to use it and if it will be used wisely. There are several pros and cons to owning a credit card:
Pros
-It is safer than carrying cash and is easier to use compared to writing checks. Credit cards are accepted nearly everywhere from grocery stores, to the mall, to movie theaters, even for online purchases.
-It provides extra security. Depending on the circumstances, you have a right to withhold payment if you are disputing with a merchant over an item.
-Most credit cards have grace periods of at least 25 days, basically giving you an interest-free loan until you have to pay the charges each month.
-Credit cards are useful for medical emergencies or unexpected car repairs.
-It is easier to track expenses by using a credit card statement than if you used cash to make purchases.
Cons
-Be careful with credit cards that have high credit limits, as they may entice you to overspend or go impulse shopping.
-It's not a good idea to have too many credit cards, especially with balances, since they can affect your chances of applying for bigger purchases in the future, such as a car or a home.
-Another way credit cards can damage you financially is through high interest rates and annual fees. If you don't pay your balance in full every month, then those dreaded finance charges will be added to your account, causing more debt.
Several factors should be taken into account when applying for a credit card, including interest backdating, when means interest is charged from the moment you make a purchase to the card. A way to avoid this is to pay the balance in full every month. Another method that issuers use is the two-month cycle billing period, where two months' worth of interest is charged if you don't pay your balance in full during the first month of having the card. In this case, you can either switch credit-card issuers or pay the balance in full altogether.
If you have a credit card with a bank where you also have a deposit account, the bank may have a right to setoff clause that allows them to take funds from that checking or savings account should you become delinquent. The best course of action here would be to bank at a different institution, or avoid credit card delinquencies. Fees are also something to watch for when applying for a credit card. If an issuer charges $50 annually, you may also be subject to high finance charges of 18 percent or more.
All it takes is to contact the bank and ask them to drop the annual fee and reduce the interest rate. If they say no, it is time to switch to a lower-priced card. Most credit cards have introductory offers that give a low interest rate such as 7 or 8 percent; however, beware that when the introductory period expires and there is a balance on the credit card, you may be subject to a higher rate as well as a higher minimum payment. To remedy the situation, you can either pay the balance in full before the rate increases or close the account.
When applying for a credit card, make sure you read the annual disclosure statement in case of any changes or benefits. If you don't agree with the changes, you can always switch cards. If you're strapped for cash, many credit cards offer cash advances, but they can impose transaction fees and finance charges, therefore increasing your overall balance. It is best to limit or avoid cash advances altogether.
Additionally, if you can pay more than the minimum monthly payment or pay the balance in full, do it. Credit card issuers are likely to make more money from finance charges the longer you carry a balance, leaving you to foot the bill. Bottom line - think of the pros and cons of owning a credit card and decide whether it is right for you. All it takes is common sense and good money management in order to avoid debt.
Pros
-It is safer than carrying cash and is easier to use compared to writing checks. Credit cards are accepted nearly everywhere from grocery stores, to the mall, to movie theaters, even for online purchases.
-It provides extra security. Depending on the circumstances, you have a right to withhold payment if you are disputing with a merchant over an item.
-Most credit cards have grace periods of at least 25 days, basically giving you an interest-free loan until you have to pay the charges each month.
-Credit cards are useful for medical emergencies or unexpected car repairs.
-It is easier to track expenses by using a credit card statement than if you used cash to make purchases.
Cons
-Be careful with credit cards that have high credit limits, as they may entice you to overspend or go impulse shopping.
-It's not a good idea to have too many credit cards, especially with balances, since they can affect your chances of applying for bigger purchases in the future, such as a car or a home.
-Another way credit cards can damage you financially is through high interest rates and annual fees. If you don't pay your balance in full every month, then those dreaded finance charges will be added to your account, causing more debt.
Several factors should be taken into account when applying for a credit card, including interest backdating, when means interest is charged from the moment you make a purchase to the card. A way to avoid this is to pay the balance in full every month. Another method that issuers use is the two-month cycle billing period, where two months' worth of interest is charged if you don't pay your balance in full during the first month of having the card. In this case, you can either switch credit-card issuers or pay the balance in full altogether.
If you have a credit card with a bank where you also have a deposit account, the bank may have a right to setoff clause that allows them to take funds from that checking or savings account should you become delinquent. The best course of action here would be to bank at a different institution, or avoid credit card delinquencies. Fees are also something to watch for when applying for a credit card. If an issuer charges $50 annually, you may also be subject to high finance charges of 18 percent or more.
All it takes is to contact the bank and ask them to drop the annual fee and reduce the interest rate. If they say no, it is time to switch to a lower-priced card. Most credit cards have introductory offers that give a low interest rate such as 7 or 8 percent; however, beware that when the introductory period expires and there is a balance on the credit card, you may be subject to a higher rate as well as a higher minimum payment. To remedy the situation, you can either pay the balance in full before the rate increases or close the account.
When applying for a credit card, make sure you read the annual disclosure statement in case of any changes or benefits. If you don't agree with the changes, you can always switch cards. If you're strapped for cash, many credit cards offer cash advances, but they can impose transaction fees and finance charges, therefore increasing your overall balance. It is best to limit or avoid cash advances altogether.
Additionally, if you can pay more than the minimum monthly payment or pay the balance in full, do it. Credit card issuers are likely to make more money from finance charges the longer you carry a balance, leaving you to foot the bill. Bottom line - think of the pros and cons of owning a credit card and decide whether it is right for you. All it takes is common sense and good money management in order to avoid debt.
