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How To Manage Your Credit Wisely
By Money Sick | April 14, 2006
Consumer credit can aid you in achieving your financial goals or it can ruin you financially. The choice is yours. Among the major reasons for using credit are:
- credit helps you to pay for big ticket ietems
- it provides extra funds during tough times and emergencies, though savings would be a better source of relief;
- it offers convenience when making purchases.
Several practices, if followed closely, form the basis of good habits with regards to open-account credit. They include: 1. Taking advantage of interest-free periods Credit and charge cards are like short-term interest-free loans. Their grace periods, which can be as long as 56 days, enable you to hold cash, which can bear you interest during this period. However, do note that on top of an initial fee, such grace periods do not apply to cash advances. 2. Going for the best deal Not all cards are created equal. Different cards charge different fees for their services. But sometimes you need to go beyond fees and look for features that augment the attractiveness of a credit card. Such features include:
- Annual fees – watch out for annual fees. Of course look for the lowest fees, but note that card companies that charge slightly higher fees for basic card membership may give away supplementary cards. This can amount to quite a lot of savings if you plan to give the supplementary cards to your loved ones. Some cards even offer free subscriptions for the first few years.
- Interest rates – though credit card bills should be paid in full, there may be instances where you are extremely tight in your cash flow. Lower interest rates would then come in handy.
- Length of interest-free period - th elonger the issuing institution allows you to delay paying your bills without interest, the better able you are to utilise your money for some other purpose – like a fixed deposit account which will earn you interest.
- Redemption schemes – in order to retain cardholders, card-issuing companies have introduced schemes where members can exchange points for free gifts. Points are allocated on the basis of the amount of money charged to the card. You should check out the various schemes offered as some companies provide better benefits than others.
- Paying in time - this enables you to use your money as long as possible. You should post your cheque just in time to catch the due date for your payments.
- Taking advantage of the cycles - Note the billing dates and the card companies’ cut-off dates. Then make major purchases after the noted dates so as to maximise the grace period where no interest is charged.
- Switching to alternative loans – If you have accumulated a sizeable amount in unpaid credit card bills, take action now! You can reduce a sizeable portion of your interest payments simply by switching to another loan. Loans that are backed by assets carry a far lwoer interest. This can be as low as the prime rate. You can save as much as 75% on your interest payments!
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