If you just got your first credit card, then “Congratulations!”
Most people get a sense of financial freedom when they get their credit card. And so should you be. You are now on your way to building your credit history.
Though your credit card feels like a golden ticket that lets you purchase to your heart’s content, you must not get carried away. There have been numerous stories of card users who have used their cards on fancy dinners, shopping sprees, club memberships, and spa treatments. Then they get shocked as soon as they see their first credit card bill.
They are confronted with the reality that a credit card does not magically pay every expense. The credit card only lets you purchase now and pay it later. Whatever you swiped must also be paid. Here are 10 things you have to know about your credit card to prevent this from happening to you.
Stick to your budget
Behavioral economics professor Dan Ariely of Duke University shared that it is more painful to pay in money since you can see the physical money leaving your hands. Paying with cards make you forget about the pain of spending and your budget.
When you write down the budget, you have the idea of how much you have to pay for a certain expense. The exact amount is easy to allocate. When you use a card, you could get excited with various promos. Some people would throw their budget out the window because they think they could save by availing the promo. However, promos have minimum required expense before you get qualified.
Pay your bill in full on time
Though credit card companies are promoting their minimum payment option, you need to be mindful of how it really works.
The advantage of the credit card is it gives you the ability to purchase something and pay it later. You have the option to pay the minimum amount of the bill may it be 5% or 10% of the bill. If you do this, you will be able to avoid the late payment penalty. Unfortunately, you will still be charged with interest.
If your credit card has an APR of 15% it will charge you a daily rate of 0.41096% per day. At the end of each day, your balance will be multiplied with the daily interest charge and then add it on top of the balance.
So if you owe $1,000 and your credit card APR is 15% your new balance will be $1,000.41 the next day after your due date. Each day, the balance will keep on increasing at 0.41096% per day until you settle your bill in full.
Avoid using the credit card cash advance
You can withdraw some cash from ATMs using your credit card. It is fast and convenient. It is like getting extra cash in an instant. But cash advance also comes with a service charge (2% to 5% of cash advance amount) and a daily interest higher than its basic interest rate. The longer it takes to settle your cash advance; the more interest it will accrue.
As for the credit card cash advance, the interest will be charged starting from the time the transaction was successfully created.
There will be no grace period unlike the loans fromcash mart licensed singapore moneylender. Loans from private lenders give you a grace period before you pay your first installment. It is smarter to get a loan from a lender which is included in thelist of licensed moneylenders.
Always remember your billing date and due date
As soon as you receive your credit card, check your billing date and your due date.
Credit cards have a billing cycle. It is the period of time that it will sum up all your purchases. At the end of the billing cycle, you will receive a billing statement containing the purchases you have done during that cycle. A billing cycle usually ranges from 20 to 31 days. It varies depending on which provider the card belongs to.
You need to pay the bill on or before the due date to avoid late payment fees and interest rate. These dates can be tricky. If you are not careful, you may lose control over your finances.
Scrutinize your billing statement
Your purchases should be listed in your billing statement. Make sure that every transaction listed is authorized. Add to that, you have to see which purchase is a need and a want. Now that you have a credit card, your spending habit might get uncontrolled. You can’t afford to just pay your credit card bill when you still have utilities and other necessities to pay.
Having a credit card may be financially liberating but you have to be responsible with your spending to avoid getting into a debt sinkhole.