Credit Card Basics: How To Avoid Losing Yourself In Debt? Top Things To Know

Using a credit card can be a convenient and powerful financial tool, but it’s essential to understand how credit cards work and how to use them responsibly. In simple words, a credit card is a form of borrowing money from a financial institution to make purchases. You receive a credit limit, which is the maximum amount you can charge on the card. You’ll need to repay the borrowed money, usually on a monthly basis, or as may be decided by you and your lender.

However, before applying for a credit card, it’s important to research and compare different card options to find the one that best suits your financial goals and spending habits.

Here are the top things to know before using a credit card:

Interest Rates:

Credit cards can come with a variety of fees, such as annual fees, late payment fees, and foreign transaction fees. Credit cards often have high-interest rates, known as APR (Annual Percentage Rate).

Interest is charged on the unpaid balance if you don’t pay your full statement balance by the due date. Read the card’s terms and conditions to understand these fees.

Overspending:

It’s easy to overspend when you use a credit card. It’s important to be mindful of your spending and only use your credit card for purchases you can afford to pay back. Use credit cards responsibly to build and maintain good credit. Avoid impulse purchases and prioritiSe financial stability.

Credit Score:

Your credit card activity affects your credit score, which is crucial for future borrowing and financial opportunities.

Timely payments and responsible credit card use can improve your credit score.

Take Advantage Of Rewards Program:

If you choose a credit card with a rewards program, make sure you use it to your advantage. Some credit cards offer rewards like cashback, points, or miles for spending. Choose a card with rewards that align with your spending habits.

Credit Limit:

Your credit limit is not a spending target. Avoid maxing out your card, as it can harm your credit score.

Minimum Payments:

Credit card statements require you to make a minimum payment, but paying only the minimum will lead to interest charges and long-term debt.

Grace Period:

Many credit cards offer a grace period during which you can avoid interest charges if you pay your full statement balance by the due date.

Budgeting:

Create a budget and stick to it. Only use your credit card for expenses you can afford to pay off in full each month.

Security:

Protect your card and card information from theft and fraud. Report lost or stolen cards immediately.

Credit Card Debt:

High credit card debt can lead to financial stress and affect your credit score. Always strive to pay your balance in full each month.

Credit Card Statement:

Review your monthly statement for errors and unauthorised charges. Report discrepancies promptly.

Payment Due Dates:

Pay your credit card bill on time to avoid late fees and damage to your credit score. Set up reminders or automatic payments if necessary.

Credit Utilisation:

Keep your credit utilisation ratio (credit card balance compared to credit limit) low, to maintain a healthy credit score.

Financial Education:

Continuously educate yourself about credit cards and personal finance to make informed decisions.

Credit cards can be beneficial if used responsibly as a payment tool and a way to build credit. However, they should be managed wisely to avoid high-interest debt and financial troubles.