Wednesday, September 17, 2008

Credit Card FAQ

Credit cards can come in handy in a pinch, but can end up squeezing you dry. Finding the best rates and reading the fine print will save you from falling into a black hole of debt.

How Do Credit Cards Work?

Credit cards allow you to buy now and pay later. Hence, they are called 'credit' cards. Credit cards are not linked to bank accounts. Like debit cards they can be used to buy goods in shops and over the phone and internet with the same information given out by you. You can also obtain cash by drawing money at bank's cash machines. Banks are always offering credit cards as they make a lot of money on them when you pay interest on your bill. You can also apply for one if you need one.

What Are The risks Of Using Credit Cards?

Think carefully before using one. If you do not repay your bill in full by the date shown you will be charged interest on the whole amount of the bill for that month. The rates of interest - the APR/Annual Percentage Rate - can often be extremely high. If you take cash out with a credit card you are charged interest from the moment you take out the money until the credit card bill is paid in full. This is an expensive way of borrowing cash. Some credit cards also have an annual fee.

What Are The Advantages Of Credit Cards?

It should be noted that if you pay off your bill in full every month it does not matter how high the interest rate is on your card because you will not be paying it. A credit card therefore gives you greater spending flexibility. If you clear your bill each month, have no annual fee your card will not cost you. Some cards also offer loyalty bonus such as points, Air Miles or cashback.

What Happens If I Fall Into Debt?

If you can't afford to repay your credit card bill you might fall into debt. If you miss the odd credit card repayment this is probably not too big a deal. There might be a penalty charge. But if you persistently miss credit card repayments and fail to pay bills you could run into serious problems.

Is There An Easy Way To Pay Off My Credit Card Debt?

The credit card market is highly competitive and so the sort of good news is that card companies like customers who run up debts on which they charge interest and make lots of money. The good news is a lot of card companies will allow you to transfer debts from other cards and offer you a lower rate of interest to attract your custom. You may find substantial savings on your credit card bills.

How Do I Choose A Credit Card?

There are lots of deals out there and the choice can appear confusing. Interest Free Cards are good if you do not clear your balance every month. There are dozens of cards on the market offering zero per cent interest, typically for five or six months. A few offer up to 12 months interest-free. The best cards give you a maximum of 50 plus days between buying and paying. Special offers will also entice you into some deals. Many banks have special debt-transfer offers to recruit new customers. Some cards offer free purchase protection insurance, cashback and other incentives.

How Do I Avoid Excessive Penalties?

The easiest way to avoid paying excessive bills and charges on your credit card is to set up a Direct Debit from your current account to your credit card to pay off at least the minimum amount each month.

How Can I Avoid Getting Into Debt With My Credit Card?

More and more people are happy with the concept of debt these days. But if you want to limit your credit card debt the best advice is not to overspend and buy what you cannot afford. For some people that may mean avoiding credit cards altogether or at least using one with a low interest rate.

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