Credit Cards: Trick or Treat?
Hi Money Monsters, I mean, Masters!
Happy October to you all! Since it is Halloween month, I’d like to talk about a topic that might SCARE you a bit…Credit Cards. More specifically, let’s discuss how credit cards can be both a trick AND a treat!
Some folks think that “credit” is equivalent to a swear word. It sort of has a negative stigma attached to it but what some people do not realize is that it can be a positive asset as well (when used correctly and responsibly).
The frightening part of credit (the TRICK) is when it becomes a hindering debt. This happens if you incur too much borrowed money in which you cannot pay off with the income you are bringing in. Some people may not realize they are headed into the “danger zone” of credit.
Some examples of this path could be:
Using credit cards to purchase basic necessities such as food, gas, clothing
Frequently transferring balances to avoid a card payment
Skipping debt payments or paying just the minimum each month
Keep in mind, the way you use credit impacts your credit score. And your credit score is an IMPORTANT part of your financial life. If you have a history of late or missed payments or more debt compared to your income, it has an impact. Also, most cards come with an outrageous interest rate. Not only do you have to pay a certain amount monthly of what you borrowed, you also have to pay interest (the fee for borrowing from that bank/company)!
The current average card interest rate is about 16%.
The more money you borrow, the more you pay back. It can take years and years depending on the amount owed. Imagine if you were able to put that money into savings instead!
Credit cards can be an asset (the TREAT) when used a certain way. First, know how to use credit to positively affect your finances.
Using credit the correct way includes doing the following:
Paying the full balance each month
Making payments on time
Make purchases knowing you can pay the full amount off at the time of billing
Next, find the right card for you. There are many cards that have a rewards program. The rewards vary from cash, statement credits, travel points and even gift cards. However, rewards based on points or vouchers tend to have more value than those redeemed for an actual monetary value (i.e. cash). Some allow you to convert points into cash in which you could use to pay down a debt as well.
Another thing to keep in mind regarding reward cards: it’s easy to get caught up in using them because the incentive is so enticing, but remember the points above!
WARNING! These cards also tend to have higher annual fees or interest rates.
Again, credit can either be a blessing or a curse depending on your situation and financial goals. Having the knowledge of the proper way to use credit will be beneficial. If I were out trick or treating, I would much rather have a tiny Tootsie Roll than another debt to pay!
Wishing you financial success always,