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What started out with good intentions for that American consumer is now turning in to its worse nightmare. Having the access to credit was said to be a luxury and not a required. Now, many Americans cannot function without the access to credit cards. How do we break this cycle of reliance on charge cards? What is our long term benefit of even having credit cards? We know short term, we can buy that high ticket item since we cannot afford with our small banking account. We are able to go on the vacation and live well for per week and worry about the bill afterwards. Credit cards are a billion buck industry. Banks make a staggering amount of cash on the interest that they charge and also the late fees that they collect. Additionally, there are numerous small fees and charges that people are hit with every day without having our knowledge. The interest on that charge card was 18% annually. By the time you repay the flat screen TV fifteen many years later, you would have tripled
the total amount that you paid in 2004. Interest, my pal, is one of the main sources where the banks make their money off of you if you use your card. Your monthly payment to the card company consists of principal and interest. The principal may be the amount that you borrowed, and the interest is the price of borrowing the money for the buy. Interest rates on cards can vary from as little as 4. 99% to as high because 30%! The interest rate is determined by the borrowers credit score. The higher the credit rating, the lower the interest rate you'd be charged. So for example, if you've got a credit score of 775, a charge card company may charge you 4. 99% and provide you with a $10, 000 limit. If you possess a score of 557, they may charge you an interest of 24% and provide you with a $3, 000 limit. The credit card companies do this simply because they feel the individual with the lower credit score would have been a higher risk to default on the charge card account. They wil
l, in turn, provide a lower credit limit and charge a greater interest rate. If the individual shows an optimistic payment history, the they will boost the credit limit and may reduce the eye rate. Plenty of times they increases the credit limit but will keep your same interest rate. When you make your payment, most of your money goes for the interest and a little goes for the principal. This is because your obligations are amortized. Amortization is when part of the payment goes toward the interest cost and also the remainder of the payment goes toward the main amount, the amount borrowed. Interest is computed about the current amount owed and then will end up progressively smaller as the ending balance from the loan reduces. Because of the way amortization is placed up, you can end up paying double to triple from the value of the original amount from the principal borrowed. Amortization is just one way credit card companies keep us trapped in financial debt for our adult l
ives. There are several credit card pitfalls you'll want to be aware of. Cash Advances - Every credit card allows you a chance to draw out cash either from the actual ATM machine or through convenience inspections. These cash advances come with huge price. Cash advances are charged a higher interest rate (from 20-25%) than a normal purchase. Even if you use a comfort check to transfer a balance in one card to another, you will be charged a greater interest rate. This is like lawful loan sharking. Credit card companies will send convenience checks within the mail with your bill every month to tempt you to definitely use them. They will make it seem that it's just as easy as making a purchase together with your credit card. The fine print may say otherwise. Avoid using cash advances whenever possible. There is no grace period with payday loans unlike regular purchases where you'll have a 30 day grace period to repay the balance before the interest leg techinques in. The intere
st with cash advances kicks within the minute you draw the money from the ATM machine. Late Fees & Over the Limit Charges - Form exorbitant interest rates that the credit card issuers charge, fees are the next biggest way they make their money. The fine print provides the credit card companies' free reign to alter interest rates at whim whenever they need. A late payment or an within the limit charge will trigger these higher rates of interest. Most companies charge a $30 late fee should you pay after the five day sophistication period. If you have a a low interest rate rate, this will give the credit card issuer the authority to charge you a higher interest rate in the future. You interest rate can jump through 5% to 18%. If you review you credit limit, most companies will charge you a $35 within the limit fee and the difference that you're over. They will also start to ask you for a higher interest rate because now you're "maxed out". With the current credit score cris
is, card companies are lowering limitations without proper notice causing customers in order to charge over their limit or maxing away their account. Once again, the customer is hit having a higher interest rate by no problem of theirs. Annual Fees - Some credit card issuers do not charge an annual charge. The ones that do will cost $150. They may charge it all at one time or break the fee up in to 12 even payments. If you don't pay the fee in full, you'll be paying interest on that annual charge, plus also lose the credit accessibility. Check your monthly statement carefully. You might have a zero balance on your accounts. Once the annual fee is billed, now you have a balance to pay for on. If you overlook when the actual annual fee is charged, you may run the opportunity of missing a payment and obtaining a derogatory on your credit report. I have experienced this happen several times. Whether you've got a balance or not, check your declaration carefully. Small Miscellaneo
us Charges - Another reason to check on your monthly statement closely is because you will find small automatic fees that are charged for your requirements monthly that we don't even discover. I had a Chase Visa charge card that I rarely used. I kept a minimal balance on the card and the payment was deducted automatically out of my personal bank statement. One month I appeared through my statement, and I noticed that $15 monthly was automatically charged to my account every month going back four months!!!. I called customer service and discovered that I was being charged for charge card insurance in case I became handicapped and couldn't pay the bill any longer. Now I know we all may require this insurance, but I never sanctioned the charge. $15 per month is really a small fee, but it adds as much as $130 per month. If the charge card company gets 100, 000 unsuspecting cardholders to overlook this charge each month, they will make $13, 000, 000 within profits. A small charge
to a large number of customers can really add up. Now that we know that it's in the best interest of the credit card issuers to keep us trapped in financial debt, what can we do to keep in front of the game? The marketing efforts of credit card issuers are getting more aggressive and innovative. We are bombarded with ads almost everywhere we look. They are even targeting kids in senior high school. Teenagers are approaching their adult years already swept up in debt. Here are some ideas to apply: Keep your balances low - When i stated before in this book, the low you keep your balances, the higher your score is going to be. The credit reporting agencies will rate your score higher should you maintain your balance below 25% of the credit limit. Pay down your balance if you're over 50%. Check your monthly statement closely to ensure your credit card company has not really lowered your limit without your understanding. Many times they will lower your own limit first, and send
out the letter later. Because of the current credit crisis, credit card companies are evaluating each account which has used over 50% of their restrict. If they notice a drop in credit rating, or even a late payment on another charge card, they have the right to decrease your credit limit without notice. This may be the "universal default clause" in the small print of your account holder's disclosure. Use automatic payments - This can be a great method to use if you're getting paid a set salary each and every pay period. By using automatic obligations, you will be assured that your instalments will be on time every 30 days. You will not have to be worried about late fees. Some credit card companies delay applying your payment for your requirements if you are close to your grace period to allow them to make money on the late charge. We cannot control how quick our payment could possibly get to the credit card company through snail mail. Make sure you budget right so you have
enough in your bank account to pay for the payment. You don't want to pay for both an over draft fee for your bank and a late payment fee for your credit card company. Now that's the double whammy! Charge what you may, then pay back in full - I've used this method for many years and this has worked out perfectly personally. For example, if I needed to purchase a plane ticket for a company trip, I will charge the airplane ticket for $199. Since it is really a business trip and I am going to make money, I will pay the $199 charge in full at the conclusion of the month when I obtain the bill. I will avoid paying interest on that charge which will also look good to the charge card company because I am paying a lot more than the minimum monthly bill. When you show an extended history of paying more than the minimum payment, you have a great chance from the credit card company increasing your restrict. By paying back immediately what a person charged, you will not accumulate a bal
ance you need to pay back in the long phrase. This will save you hundreds of dollars in not spending interest charges. If you cannot afford to pay cash for that item or able to repay it at the end of the 30 days, don't get it!! Negotiate your interest rate down - After you have established a long term history of promptly payments to your credit card organization, you can negotiate with them to reduce your interest rate; even if you do not have a perfect score. The credit card issuer does not want to lose you like a customer. Once you have established a great relationship with that company, it is the right to ask them for less rate. You have nothing to shed. If they give you a reduce rate, you save yourself hundreds associated with dollars. If they do not provide you with a lower rate, you can transfer balance to another credit card with less rate, close the account, or don't charge anymore items on that accounts. Try to use your credit greeting card for emergencies & bus
iness expenses - Everyone knows by now that having access to credit cards is a life-style in our society. We need it to construct our credit scores. Credit cards are simple to use when you have to make buys online. We have explored the evils and temptations that include having access to credit cards, but when is the easiest method to use it to our advantage? Instead of using charge cards to buy depreciating goods, to behavioral instinct shop, or to buy big solution items, I feel there are two good instances to make use of your credit cards. 1. I have heard many financial experts like Suze Orman tell take your credit card and place it in the freezer. This will cease you from impulse shopping. She is actually right. Use your credit card with regard to unexpected events like:
- Making travel arrangements to determine a sick relative or to go to a funeral.
-Making repairs to your vehicle if it unexpectedly breaks down.
-Making repairs to your house if your boiler burst or your own roof leaks.
-Taking care of a little medical bill or to get medicine on your own or your family. These are some the legitimate excuses to use your credit card in the event of an emergency. Things happen beyond the control. It is good to have the actual piece of mind to know that you could have your credit to fall back on inside your time of need. Try to pay around you can when the bill comes at the conclusion of the month. You do not need to max out your limit. You need to replenish your credit limit in case another emergency would be to arrive. 2. It takes money to earn more money. There will be occasions where you'll need a credit card to help finance some facets of your business. Whether you have a startup or perhaps a seasoned business, you may need use of working capital to purchase products for the business. You may need to market and promote your company as well. Instead of using your charge card to buy a product that is actually making that company richer, you are purchasing enr
iching yourself.

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