How to use a credit card: top 10 main rules.
What is the principle of credit cards
A credit card is a bank “plastic” linked to an account in which a certain amount is placed. The money in the account does not belong to the client. This is the funds of the financial institution, they are called a credit limit. When a citizen pays for goods or services with a card, he is borrowing money from the bank. Within a certain period of time, the debt must be repaid, or the interest will start “dripping”.
NOTE: The grace period for repaying debts is called a grace period.
You have to make a minimum monthly payment to your account, even if the grace period is not over yet. The repayment amount is 5-10% of the loan. Forgot to pay the amount on time? A grace period loan will immediately turn into a standard loan at an average rate of 25-30% per annum.
After repayment of the debt, the credit limit is renewed. The initial amount of borrowed funds is available to the client again. The higher the income and the better the financial reputation of the citizen, the more money the bank can lend him (the conditions are considered individually).
Top 10 tips for using a credit card
If you use a “credit card” taking into account the following recommendations, it is real not only to save money, but also to earn money:
- Before processing “plastic” compare different options and study the terms of the contract. Pay attention to the cost of issue, delivery and annual maintenance. Important points are the length of the grace period and the interest rate. Familiarize yourself with the scheme of interest and penalties for late repayment grace period.
- Use the card for non-cash payments only. ATM withdrawals and money transfers usually incur a fee. In addition, after carrying out such transactions, the bank may suspend the grace period and start charging interest on the loan amount.
- Don’t skip the dates of your minimum monthly payments, otherwise the grace period will be canceled and the interest-free loan will become a standard loan.
- Calculate the grace period correctly: different banks have different requirements. Some institutions start counting from the date of the first transaction on the card, while others start counting from the date of registration of the “plastic”.
- Try to deposit an amount greater than the minimum payment. That way you can pay off your debt more quickly.
- Choose a card that can be used as a debit card: use it for transferring your salary and other income. It’s beneficial when the bank charges interest on the account balance every month. Then you will be able to use your own and borrowed money with a common “plastic card”. For example, at the end of the month it is more profitable to pay for purchases with your “credit card” to earn interest and then quickly repay the debt without overpayment.
- Collect bonuses and miles. Each bank has a loyalty program, which gives clients cashback for their finances. Accumulated points are allowed to pay up to 100% of the cost of certain goods.
- Avoid spontaneous purchases. This rule is true for both credit and debit cards. Take a break for a few hours, or even better a couple of days. So you have time to cool down and figure out if you really need a thing, or you can do without it.
- Do not allow late payments, otherwise all the savings will be lost. Any breach of the schedule will result in penalties. Additional risk is the deterioration of your credit history.
- Think about how you are going to repay your debt. Don’t spend more than you can afford. It’s easy to spend borrowed funds, but you have to pay back your own.
Do you have a credit card, but don’t use it? Then it’s better to close your card and account. This will help you avoid the risks associated with charging fees for servicing the “plastic” (sometimes the fees are charged without notifying the client). Check your credit history regularly. This way you’ll know what bank products are in your name, and you’ll be able to control your credit obligations.