Credit Card Basics

Credit cards are perhaps the most common type of personal loan in today’s world. They are convenient, available and make it easier for us to pay for big expenses. They also provide us with money now to take care of emergencies or buy things that cannot wait for pay day.

However credit cards come with big responsibility too. If not managed properly, they can spiral into heavy debt. One important thing to be aware of is that every time you charge a credit card, you have borrowed a loan and that expense must be paid with some finance charges. Finance charges vary with credit providers and credit scores. The better your ability to manage credit, hence higher credit score, the lower your finance charges are likely to be.

Finance charges are mainly the interest the credit provider charges every month for an account that is not paid in full or that has cash advance. The basic thing that every consumer of credit should remember is that it is based on the average daily balance on your card. This is the total balance at the end of every day divided by the number of days in a billing cycle.

Credit should be used wisely. Red flags for irresponsible use are when you have to use credit for everyday purchases such as food, gas or groceries. Wise credit use involves spending an amount that you are able to pay in full at the end of every cycle or at least more than the minimum charge. Always inquire what the providers APR and the interest on cash advances is before you get new credit.

In the event that credit becomes a problem, you may consider getting a lower cost secured loan to pay it off. Consolidating it through a consolidation firm is also a good option. This is refinancing which usually results in lower interest rates.

Failure to pay off your credit could lead to dire consequences. Your account could be reported to a credit reporting agency which in turn lowers your score thereby increasing your cost of borrowing in the future. Sometimes, if the credit is overwhelming, you may be forced to file for bankruptcy.

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