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Credit Cards (1)


Select from a wide range of Credit Cards offered by IDBI Bank: ✓Lifestyle ✓Travel ✓Fuel ✓Shopping with attractive features and rewards. – PowerPoint PPT presentation

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Title: Credit Cards (1)

Credit Cards
How to Use a Credit Card Responsibly
  • I wrote this article in 2007 when I was still
    digging out of debt and struggling with how to
    quit my bad money habits, and Ive since updated
    to include some things Ive learned in six plus
    years of blogging about money.
  • Using a credit cards responsibly isnt a
    difficult concept. Whats important to remember,
    however, is that how you use credit cards is a
    habit. During your first few years of using
    credit cards, you will either develop good habits
    or bad ones. And you can take it from me, being
    reckless with credit cards is not only a hard
    habit to break it can cost you thousands and
    thousands of dollars.

  • How credit cards work
  • Understanding a bit more about how credit cards
    work can help you use them responsibly.
  • When you swipe your credit card, your bank loans
    you the money to make that purchase. The credit
    card then gives you a grace period typically
    between 20 and 30 days during which you can pay
    off that purchase before interest begins to
  • Grace periods are powerful because they give you
    the opportunity to use your credit card as a
    short but interest-free loan.
  • As long as you pay every penny you charged last
    month before the due date, you wont pay
  • Sooner or later, however, many people do not pay
    their credit card balance in full each month,
    turning their credit card into a revolving credit
    line. Finance charges (interest) then accumulate
    on the unpaid credit card balance each month.

  • Now the credit card companies make a little bit
    of money every time you use your card because
    they charge stores 1 or 2 percent of your
    purchase (called an interchange fee) to accept
    the card.
  • But the real money comes in charge you interest
    when you carry a balance in other words, you
    dont pay off your purchases in full at the end
    of the month. Credit cards typically charge
    interest rates between 10 and 20 percent. So,
    with interest at a 15 percent annual percentage ra
    te (APR), if you charge 500 to your card that
    you dont pay off for a year, youll end up
    paying the bank 75 in interest. If you owe
    5,000 thats 750 a year in interest, 50,000 is
    7,500 a year!
  • The worst part is that credit card companies make
    it easy to get into this situation by only
    requiring you pay a small minimum payment each
    month, usually between 2 and 5 percent of your
    balance. So until you hit your cards credit
    limit the most the bank will let you borrow
    its very easy to charge a large balance thats
    difficult or impossible for you to pay off.  And,
    once you have it, the interest meter keeps

  • If youre in this situation, you may be able
    to do a balance transfer in which you transfer
    your balances to new credit card that has a 0
    percent APR for the first few months. This is a
    tool credit card companies use to get you to
    switch from one card to another of course they
    hope that you will continue to pay them interest
    after the promotional 0 percent aPR expires.
  • Whatever you do, if you get stuck with a credit
    card balance you cant immediately pay off, you
    need to make and follow a plan for getting out of
    debt like I did.

  • To use your credit card responsibly, you must
    develop the habit of paying your balance in full
    each month. That means keeping track of how much
    youre spending on your credit card each month
    and ensuring you will have enough cash the
    following month to cover your purchases.
  • I find that using one credit card for nearly all
    of my monthly purchases not only makes this
    fairly easy, but has made it easier to manage my
    money, keep my checking account balanced, and
    track my spending.
  • With a very simple spending plan in place, you
    should know how much discretionary income you
    have left after required monthly expenses.
  • Lets say your monthly spending allocation is
    1,000. Now assume youll need 100 in cash for
    various transactions where using a credit card
    isnt feasible. You know that you have 900 to
    spend for the month and can easily track how much
    you left to spend by checking your credit card
    balance, which most cards allow you to do easily
    and for free online.
  • At the end of your credit card billing cycle,
    simply pay the balance and start again.

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