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If you’re like most Americans, offers for credit cards arrive in your mail on a daily basis. Why are credit card companies so eager for your business? Many intentions are behind it. Credit cards, for one thing, are not free cash. Funny enough, many customers think of them this way, and that—aha!- is how credit card companies build up money.
You’ll notice when you read through the fine print about credit cards that there are varying APRs, or annual percentage rates. It refers to the interest rate you have to pay on your credit card charges if you did not pay your full monthly balance. When did you went shopping last time. Before buying anything make sure you can pay for those things from your monthly salary? Credit card companies bank on customers who are not attentive towards their shopping. Credit card companies work on the chance that users will purchase more than they can actually afford using their credt card. When the bill comes and it can’t be paid in full, the customer pays interest on this borrowed amount, and that interest accrues daily. This money goes right into the credit card company’s bank account. With thousands of customers falling into this predicament on a monthly basis, you can see where the companies get rich quick.
How to avoid falling into the credit card trap? A little forethought and budget planning can help you prevent paying interest and still allow you to benefit from credit card perks.
Take mileage credit cards, for example. Many airlines offer credit cards that earn you frequent flier miles based on the amount of dollars you spend. Alluring, right? Sure.
Just be careful to know how much you are able to spend in a month, and don’t let yourself go over the top. It’s easy to check your credit card balance online or by telephone. Always do shopping within your monthly limit and know when the closing date is for your monthly statement. That way you can take advantage of the bonus without digging yourself into a rut.
Speaking of the credit card rut, let’s go back to that interest thing. Is you did not pay your interest fully in a month it will also accumulate interest? Take a look at this example. You have racked up $10 in interest on your credit cards in one month, based on a balance of $100. (This assumes a 10% monthly interest rate.) The next month’s interest accrues on the new balance of 110$ since you leave it unpaid. That means the next month you owe an additional $11! You have to pay a fees of 21$ on your 100$ purchasing. Did you really find a bargain when you bought that jacket at 20% off? Probably not.
If you buy responsibly and keep track of your purchases, you can avoid credit card traps. Be a smart consumer, and credit cards can work in your favor.
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