Credit Cards Continued…

Do you plan to pay the balance in full every month or just make the minimum payments? From a financial planning perspective, paying your balance in full is by far the best option when using credit cards. Making only minimum payments is probably the most expensive form of financing you can find.

Can you live with a credit limit on your card, or do need to have the flexibility to make large purchases?

Does the idea of getting air miles or car purchase dollars interest you, or because the card restricts you to a single airline or car company seem like a waste of time?

Is the ability to pay your bill with a silver, gold or platinum colored card worth the annual premium you will have to pay?

Whatever type of card you decide to get, here are some things to keep in mind.

Using a credit card is like taking out a loan. Whatever you charge on the card you are going to have to pay back. If you can pay off your balance every month, you can take advantage of the interest free period before being required to make a payment.

Think before you buy something on your credit card. It's easy to make impulse purchases on a credit card forgetting that they have to be paid for, often with interest.

When you make a cash withdrawal, the interest starts being calculated immediately, so you lose the benefit of the interest free period that you get when you make a purchase.

Don't just rely on your monthly statement. Keep your receipts and make sure that the charges on your statement match your receipts. Report any discrepancies immediately.

Just because the credit card company increases your credit limit, doesn't mean that you should spend to your credit maximum.

Credit cards are valuable personal documents. Protect them. Only give your credit card number to reliable merchants, and if you are making a purchase over the phone ensure that no one can hear your card number. If making a purchase on the web, be sure the web site is secure (little picture of a closed padlock in the bottom corner).

Credit cards are the proverbial “double edged sword”. They can make your life easier by allowing you to make purchases when you need to. However, because they do make buying so easy, you can very quickly pile up a large amount of very costly debt. Treat them with respect.

By Murray Anderson