Are you getting hit up with credit card offers? Here’s the lowdown on the pitfalls, benefits and best use of credit cards.
Imagine you spend $1000 with your credit card to buy a pair of shoes for $100, school books for $700 and groceries for $200. If your interest rate is 25% and you only pay the minimum payment each month it will take you 210 months (17.5 years) and cost you $2703.61 to pay it off. That’s over $1700 is interest payments alone.
1. Too easy to spend money you don’t have
2. The interest rate is usually very high 15% – 30%
3. If you only pay the minimum payment it can take you many years to pay off.
1. In an emergency it can help cover costs
2. You can get reward points towards cash back or products/services
3. Can improve your credit score if payments are made on time
Best use of Credit Cards
It’s not that credit cards are inherently bad, you just need to know how to use them to your benefit.
1. Don’t spend more that 33% of your available credit. Keeping the ratio of outstanding debt to available debt is an important key to a high credit score. A high credit score is important because it allows you to borrow money at the most attractive rates
2. Pay off your bill every month. If you do this you won’t incur any interest charges.
3. Sign up for cards that will give you cash back or earn reward points for products/services. If you pay them off at the end of every month you can actually get paid for spending money. How cool is that?