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The use of credit cards have gotten a lot of consumers in debt. When the economic crash happened, we all floundered with the difficult problem of getting out of this debt situation. Although we want to get rid of this type of credit, some financial experts advise against it. You may want to live without credit cards but that will make it difficult for you to keep your credit score high. Unless the current financial system changes, your credit score will remain to be an important indication of your creditworthiness. That means you have to take good care of it.
If you think about it, there is no reason to fear debt. In fact, it can be good for you sometimes. Instead of fearing any credit obligation, you just have to be smart about your debts. You don’t have to completely eliminate credit cards because there are ways to use it without you ending up in debt.
Different card accounts that you can get
Among the best practices in using these plastic cards without being in debt is by choosing the right type of card. There are various facts about credit cards and you need to know them one by one to determine the right account that you should use.
Here are the different card accounts that you can choose from.
Regular credit card. This is the most common type of card. Sometimes, this is called a standard credit card. It follows the usual rules of giving you a credit limit that you can use for purchases. This limit can change over time. You can maintain a balance as long as it does not go over that credit limit. When you pay that amount, it frees up more purchasing power. There is a minimum payment that you have to maintain though. If not, you will be imposed with a late penalty fee. You just have to know that every time a balance is carried over to the next billing cycle, it will be imposed with an interest rate. These cards do not offer any reward programs.
Premium credit card. This is a card that offers benefits and other purchase incentives to encourage cardholders to use their account often. These rewards can be reward points, travel benefits and cash back rewards. It is harder to qualify for these cards and they usually come with higher charges and fees.
Secured credit cards. This type of card requires an initial deposit before it can be used. The deposited amount will be the credit limit of the card. The holder will still be required to make monthly deposits. This is a great card option for those who do not have a good credit report or no credit history.
Prepaid cards. Another option for people with bad or no credit history is a prepaid card. This is also known as a debit card. Unlike the secured card that still uses the creditors money when you use it, a prepaid card makes use of your money. These do not really put you in debt so it does nothing to help your credit score.
Charge cards. This type of credit card does not have a credit limit but you do have to pay the balance immediately at the end of the month. There are charges and late penalty fees if you fail to pay the full balance.
Limited purpose cards. These type of cards can also be called store cards or gas cards. It simply means you can only use it on selected merchant stores or establishments. They are used just like the standard card with the minimum payment requirement and other finance charges.
Business cards. These, as the name suggests, is exclusive for company use. This can be in standard or charge card accounts.
Features to consider when choosing a plastic card
When you know what type of credit card you want to avail, you need to compare against different companies. That should be easy to do because there are online websites that can help you compare credit cards against each other.
When comparing credit cards, make sure you consider the following features.
Credit limit. If you know that you cannot afford to be in debt, choose a card that has a low credit limit to keep the temptation to spend very low. Going beyond this limit will incur charges.
APR. This is short for the Annual Percentage Rate or the interest rate on your card. Although you may choose a low interest on your new card, it can still go up as the creditors see fit. When this happens, know that you have every right to refuse the increase. Discuss and negotiate with your credit card company.
Grace period. This is the time frame between the date of purchase and the due date on the billing statement where that purchase is included. If you pay within this period, your balance will not be imposed with penalties.
Finance charges. It is the amount that will be added to your balance if it is carried over to the next billing cycle. This varies between creditors. Some of them compute it based on one or more billing cycles. Make sure you discuss this with the creditor to understand how it affects your monthly payments.
Credit card fees. These are the different charges and penalties that you will be subjected to if you fail to follow the rules of your credit card payments. These includes late penalty fees, annual charges, etc.
- Rewards programs. Depending on the card that you will use, this is another feature that you have to look into. Make sure it compliments your spending lifestyle. That way, you can maximize the benefits of the program.