Things a credit card user should know
Credit is part and parcel of today’s way of life. The use of credit cards is now a commonplace. This often leads to increased spending, so it’s vital to learn how to handle credit wisely if you are to manage your money well.
In many minds, credit is thought of purely as installment buying. However, credit comes in many different forms. It can be a cash loan, a charge account, a credit card, or deferred payment for services, such as dental treatment. One kind of credit might cost you less than another kind, but all credit costs something. You can make a savings by shopping around for the cheapest credit— but you’ll save the most by using credit wisely. This means that you should not borrow money except for emergencies, and that you should buy for cash whenever you can. Limit your installment buying, and stagger major purchases so that you aren’t trying to pay for a car, a freezer, a stereo set, and a bedroom suite all at once. When you must use credit, shop for the best buy.
One of the first things you will discover when you begin shopping for credit is that lenders want a solid citizen—someone who stays in one place, holds a steady job, and shows no inclination to skip town with the cash. A secretary, even if she has only been working a short time, usually has an easier time getting a loan than an entertainer. Even if they have been at it for years, entertainers are generally considered bad credit risks because they often have long periods of unemployment, whether or not they make a lot when they do work. Anyone who owns a house finds it easier to get credit than someone who rents. Anyone living in a furnished room is suspect in the eyes of lenders, who assume the prospective borrower has never been able to get together the cash to establish a real home. A credit record, like your general reputation, follows you throughout life. You have to work to keep your record good, but, if you want the things credit can bring, it’s worth the effort.
How Much Debt Can You Handle?
Economics experts say that a person can usually manage debts up to 20 percent of take-home pay less any mortgage payments. This applies to you only if you can be reasonably sure that your income won’t take a nosedive, if you have adequate health insurance, and if you have a nest egg for emergencies. These are important, and, because no one can be sure what the future holds, it is safer to keep your debt load between nothing and 15 percent.
Know How Much Interest You Will Have to Pay Out
Different lenders have different ways of applying interest charges, and as you shop for credit, you may find yourself confused by annual percentage rates, unpaid balances, and true costs. You’ll wish you had paid more attention in high school math class, but it’s not too late to learn.
One general principle to keep in mind is that monthly interest rates are often quoted at 1.5 to 2.5 per cent per month. Sounds cheap. Is it? Those percentages are only for one month. To find the true cost, multiply by 12. The cost at 1.5 percent per month is the same as 18 per cent per year true interest. At 21 per cent per month, the true annual interest is 30 per cent. Monthly rates of 1.5 per cent are often charged when you pay interest on the unpaid balance, as for many department store charge accounts, credit cards, and installment plans.
on September 5th, 2008 at 1:15 am
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