We all run into situations where there seems to be more month at the end of our money, leaving us in a sticky financial position until that next paycheck arrives. One way to get through the month when on something of a fixed budget is to use a credit card. As is the case with anything, there are some definite pros and cons with credit cards. The obvious benefit is that you can get help making purchases you would ordinarily be unable to, with the downside being that the amount you need to pay back is a lot more than you actually spend.
It is very easy to get into further financial difficulties if you aren’t careful about how you use your credit card, but if you can control your spending, they are actually quite beneficial. We are not just talking about being able to buy something when you really need it, but rather that being smart about how you use and pay off your cards can actually help your credit rating. When you first start out in your adult life, getting loans or credit of any kind can be very difficult. The only way to build that up is to establish a good credit rating, which often begins with getting a lower limit credit card that you properly maintain.
Understanding how credit cards work can help you keep your spending under control, making them that much easier to pay off. When you apply for and are accepted for a credit card, you will be given a limit that you cannot go over. This limit will often be raised by the credit card company of you show that you pay on time and keep your spending under control. You will also see the annual percentage rate (APR) listed in the fine print, which basically tells you what the interest rate will be. It’s important to read the fine print, though, as credit card companies will often lure you in with a low APR, only to raise it dramatically after a set period of time.
The way in which interest is calculated with credit cards is also a little different, as they usually compound the interest on a daily basis. What that means is that much of the money you pay back actually goes towards interest as opposed to the amount you actually spent. This is especially true of you only pay the minimum amount due each month. It is always recommended that you pay back as much as you can afford each month, as simply sticking to the minimum payment means that interest continues to pile on, making it very hard to pay the card off.
If you are thinking of applying for a credit card, take some time to think about how you plan on using it once you get it. Your goal should be to become what is referred to as a convenience user. That means you pay off the balance owed each and every month. Doing so will help your credit rating and ensure that you don’t fall into financial difficulty.
