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It has become commonplace to use credit cards when you don’t have cash - everyone does it. Just pull out your card and buy whatever you want - real easy! In reality it’s not quite so simple.
When you use a credit card to buy something, for example a new television or a dress, the bank or store is actually lending you the money to make the purchase. In a few weeks they will send you a bill and you are expected to pay back the loan. The best thing to do at that point is pay the bill in full.
Your minimum payment required each month may seem quite small compared to the total amount you spent, and often this is all you are required to pay. Be very wary of those small minimum payments though. It may be more affordable to only pay that small amount, but this is often where people’s problems with credit card debt begins.
When you only make a minimum payment on your credit card bill, a fee, called an interest rate, is added to the bill. This fee increases the amount that you originally paid for the product. Too often, people are charmed by the idea of a minimum payment. They think that they can now afford to buy several other items and only make minimum payments on those as well.
More cards mean more bills, with rising minimum payments and interest being added on until they are no longer quite so affordable. When people find they are unable to pay the monthly minimum, the credit card companies add more interest - every month. Eventually, you may still be paying for an item you purchased long after you’ve finished using it.
Often you just feel like splashing out a little, and that’s okay. If that leads to maxing out your credit cards, rather go for a jog round the block! If you still want to spend money, look for good bargains and discounts, and stop at one purchase.
If you must, use your credit card to buy what you can afford, and avoid the minimum payment trap. Be responsible about paying the bills when they come in, and don’t put it off if you can help it. If you see that your cash flow is going down, curb the spending. Remember that missing payments can affect your credit record and your ability to get credit when you really need it.
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