The United States has hit a record-breaking $986 billion credit card debt. Americans are relying on credit as inflation continues to stay high. However, credit cards should only be used as a safety net when you have money.
Overspending on credit cards can lead to bad habits and increases your risk of becoming delinquent if you cannot repay those funds.
Here's what you need to know to remain independent while using your credit card.
Don't apply because you need money.
Credit cards do not represent "free money." Instead, upon approval for a credit card, you are granted access to a specific amount of funds. Once you use a credit card, you are obligated to pay those funds back with interest. In addition, most credit card providers complete a hard credit check with each application. Hard credit checks impact your credit score. If your credit is in good standing, the effect on your credit might be minimal. However, if you are trying to repair your credit, this can decrease your score and may look bad on future applications.
Applying for a credit card because you need more money is an ineffective way to earn more money. First, you have to pay what you use plus interest. The average credit card interest rate is around 20 percent, if not more. There are also associated fees with credit cards; some issuers require you to pay them before they even send you the credit card.
In the long run, applying for a credit card because you need money can put you in a worse position than when you started. Instead, try to find ways to make passive income or take on a second job. It will help you in the long run if you find additional income sources, compared to putting yourself in more debt.
Read the terms & conditions, and know your interest.
Everything we sign-up for includes a set of terms and conditions. So often, we get overwhelmed with the information and agree without reading. But it's essential to know the terms and conditions of what we are signing up for.
Terms and conditions provide us with all the information needed before we take on the responsibility of possessing the credit card. Terms and conditions also legally bind the cardholder to the guidelines and rules of the card issuer. These guidelines include the fees the holder must pay, the interest they charge, what happens in the case of delinquency, and more.
Knowing the terms and conditions is not just set up to benefit the card issuer but can also help the cardholder. The terms and conditions act as a safety net for consumers, and card issuers need to follow federal guidelines and laws that protect consumers from unlawful practices. If the card issuer abuses its power, cardholders can dispute charges and write-offs that do not follow the terms and conditions.
Use your credit card without jeopardizing your credit score
Five factors go into your credit score; Payment history, amounts owed, credit history length, credit mix, and new credit. Despite how much money you make, if you max out your credit cards, continuously open new accounts, and miss paying your bill on time, it will harm your score. A good rule when using your credit card is to keep your balance under 30%.