Facing continued inflation, low wages and job instability, that people are looking for ways to cut credit card debt is no surprise. Unfortunately, too many people consider only initial interest rates or bonus programs when they choose new credit cards. All too often, they find themselves in hot financial water that is just as deep and turbulent as what was drowning them before. Instead of reaching for a lifeline that reveals itself as a flimsy string, take a few extra minutes and double check some facts.
1. Why do you want a new credit card? If you are already “robbing Peter to pay Paul,” paying bills with a credit card that has now reached its limit, getting a new credit card won’t help your overall situation; odds overwhelmingly lean toward the opposite direction: If you use credit cards to pay living expenses, more credit will dig deeper holes. Instead, find other ways to reduce other bills, which will free funds to pay all your bills with your current income.
2. How will you use the new card? If you are planning to use a new card as an emergency reserve card and have the self-discipline and financial security to use it only for that purpose, have you looked closely at the annual fees you may incur? Are there interest rate hikes that will develop without regular purchases on the new card?
If you will use the card for small, multiple purchases each month and plan on paying the balance in full within each billing cycle, that’s fine, but ask yourself why you want another credit card for that purpose. Using a bank card, a debit card, ensures a zero forwarding balance, and you avoid the potential of interest accrual.
If you want it to build or rebuild your credit history, take care to avoid the reason you need to establish or re-establish credit: Some credit is good; too much credit just for credit’s sake is not: It’s actually a sign that is being interpreted as potential fiscal irresponsibility. Like fertilizer on a lawn, a little bit goes a long way while a lot could cause severe damage.
3. Why are you considering THAT card? Do you truly travel enough during non-peak times to take advantage of frequent flier miles? How many dollars or pounds or euros do you have to spend before that free ticket is allegedly free? Can you get a better “return on investment” seeking discount tickets and hotel bookings?
4. Do you have full control over maximum spending limits and interest rates? Many credit card companies elevate spending limits after a few months of reliable payment history, but that increase also raises interest rates on the additional balance availability. If you catch the escalation, don’t want it and refuse the interest rate hike, you might convince the issuing organization to lower the ceiling and rates again, but it’s often not easy. They want you to use it: They earn their money on transaction fees from the merchants, annual fees from the consumer and accrued interest rates. They’re hoping that if you have more available, you’ll spend more. That’s good news for them, but it’s not always good news for you.
5. Can you truly afford a new credit card? If you can transfer a high-interest balance onto a zero-interest-transfer card and pay the transferred balance off within a short time, the new card might be worthwhile, but if you cannot pay the transferred balance in full, know the extended interest rate. Compare the worse-case scenario with the interest and balance you already carry.
Bottom line: Make the best-informed decision possible.
Post written by Holly Miller, a writer for CouponCroc.co.uk. Shop online and save with promotions and other discounts to cut costs on all of your expenses.
Comments on this entry are closed.