Basic Info for Novice Credit Card Users
When you get your first credit card, you feel very excited and tempted. It is indeed a different and wonderful experience when you get to make purchases on credit. Previously went through the routine of saving money to buy something of bigger value, but your credit card changes this pattern – it gives you more freedom and temptations. Your shopping habits change and your purchases increase.
Your first temptation is to buy more, but here is the downside, nothing is free. You need to control your shopping impulses and do a little budgeting. If you go crazy with a credit card, things can turn ugly for you. You will be facing fees and charges to clear your debt and you will no longer own a credit card. Here are a few tips for beginners.
Don’t Spend the Full Credit
It is a pretty simple rule, you should not spend your maximum credit limit. This is the most crucial part of owning and using a credit card. Your credit limit is set out by your creditor based on certain financial factors. Some people get larger credit limits due to their better credit history or excellent credit worthiness.
When you do spend the maximum, lenders will likely tag you as a financial risk for their company. And if you continue this practice, they will shorten the amount of your credit limit. To be on the safer side, always remain in the 30%-50% spending zone. It means that you must not exceed 50% of your credit limit. This will show that you are handling your credit responsibly.
No Cash Advances
Some of you might not be familiar with the idea of a cash advance. In simple words, instead of using the credit of your credit card, you use cash and pay it back to the bank. Sometimes you have to deal with a merchant who does not accept credit cards. This might leave you with an urgent need to find cash to pay the bill, so you opt for a cash advance at the checkout. You take the cash, pay the merchant, and repay this amount back to the bank at some later date.
But the problem with a cash advance is that they are very costly. Their interest rates are alarmingly high and they start accruing interest from the time of your cash advance withdrawal. Other cards start accruing interest at least 30 days later.
Novice credit card holders are better off saving the money first and avoiding any cash advance for the rest of their lives. In fact, every single credit card holder should avoid these nasty traps.
Pay More than the Minimum
Beginning credit card users can get the wrong idea that paying off their credit balance is easy and they just need to make that minimum payment each month and everything will be alright. This strategy can cost you big time. Minimum payment requirements are designed for the months when you will be on a really tight budget.
If you stick with the pattern of making only the minimum payment each month, you will be carrying undue balances from one month to another, accumulating interest. Avoid this debt pit and try to pay off the whole balance each month. If that’s not possible, you should at least pay double the bank’s minimum monthly requirement. You will sleep better at night doing so.