Practical money matters by Jason Alderman
CREDIT CARDS offer many advantages. There is the convenience of being able to buy needed items now and the security of not having to carry cash. You also receive fraud protection and in some cases rewards for making purchases.
With these advantages also come responsibilities. You need to manage credit cards wisely by understanding all of the card’s terms and conditions. Stay on top of payments and realize the true cost of purchases made with credit.
Using a credit card is like taking out a loan. If you don’t pay your card balance in full each month, you’ll pay interest on that loan.
Choose wisely. The best way to maximize the benefits of credit cards is to understand your financial lifestyle – your money needs and wants. Once you determine how you’ll use a credit card, it’s important to understand all of the card’s features including:
•Annual percentage rates (APRs) and whether rates are fixed or variable
• Annual, late and over-limit fees
• Credit limit on account
• Grace periods before interest begins accruing
• Rewards including airline miles or cash back
Stay alert. Some credit-card issuers offer free, personalized and automatic alert messages to your phone and e-mail to help you keep track of available credit, balances, payment due dates, payment histories and purchase activity.
Understand your rights. Credit-card holders are entitled to protections.
Zero liability means you are not responsible for fraudulent charges when you report them promptly.
In some cases, you have the right to dispute purchases with merchants for unsatisfactory products or services.
Follow the 20-10 rule. This general “rule of thumb” helps you understand how much credit you can afford.
Credit cards are loans, so avoid borrowing more than 20 per cent of your annual net income on all of your loans – not including a mortgage. And payments on those loans should not exceed 10 per cent of your monthly net income.
Jason Alderman directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.