Five Tips for Using Your Credit Cards Wisely

Credit cards do not have to be evil. However, it is vital to use them responsibly so you do not get into financial troubles.

Credit cards can be a great addition to your wallet. If you know how to use your credit cards correctly and pay them off at the end of each month, you are a responsible spender. Unfortunately, many people use their credit cards in such a way that they go deeper in debt until they reach a point that seems impossible to recover from. Here are some useful tips to help you use your own credit cards responsibly.

Credit Cards are NOT Free Money
The opposite of this statement is true. Credit cards are not free money, but rather expensive money. If you do not pay off your credit card balance at the end of each month, you are going to pay interest on that balance (unless, of course, you are under a promotional plan in which you have zero percent interest for a period of time). The interest on your balance continues to accrue until it is fully paid off.

Limit Yourself
Many American households have at least eight credit cards in their wallets and purses. This is not a good idea because there is simply too much temptation to spend and charge on all eight cards. This not only makes it more difficult to keep track of the money you spend, but it also runs up your bill to where you cannot pay them all off at the end of each month. Limit yourself to one or two credit cards to avoid temptation and financial dangers.

Keep Track
Some people get into debt troubles because they do not keep track of how much they are spending. When you just “put it on the card,” you forget about how much you spend throughout the day. The day turns into a week and then the weeks turn into the month until you receive the monthly statement. Keep a little notebook with you to write down how much you spend or keep the receipts throughout the day and record them in a logbook at the end of each day. This will help you notice where your money is going and it can help keep you under control when it comes to buying things with your credit cards.

If You Can’t Afford It, Don’t Buy It
Credit cards might seem like the perfect way to buy stuff that you cannot afford. But that mentality will put your into debt fairly quickly. Credit cards should be used in emergency situations and only if you can pay off your balance at the end of each month. When you use them this way, you will be a responsible spender.

Track Your Credit History
In order to make sure your credit score is accurate, you should check your credit history through the three major bureaus at least twice a year. This will tell you if there are any unauthorized accounts in your name and if the credit agencies have been reporting your payments accurately.

Follow these five tips for using your credit cards wisely and you will be ahead in the financial game!

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

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New Regulations Aim to Curb Credit Card and Overdraft Fees - Is this Right?

Congress is regulating away tens of billions in bank profits from "deceptive" credit card and overdraft practices. To compensate, banks are looking at new fees. Is this fair? Many consumers feel that banks are making enough of a profit and should stop with the less upfront ways of making money.

In February, the February Credit Card Act of 2009 goes into effect, clamping down on credit card rate increases, forcing banks to notify customers of changes in the terms and conditions, and changing the way payments are credited. Credit card companies collected $29 billion in fees in 2008.

In addition, starting in 2010, the government is cracking down on how banks charge for overdrawn accounts and overdraft fees. Banks will be forced to allow customers to opt-out of overdraft protection when using a debit card ot ATM. That means that if a transaction brings your balance below $0, the transaction will bounce instead of incurring an overdraft fee and being covered. The Fed estimates that banks generate $25 billion to $38 billion a year in overdraft fees.

In response, banks are looking for othe ways to generate revenue. According to a Wall Street Journal article, banks are looking to promote greater debit card usage (which is more profitable for banks), new types of fee-based checking accounts, and increase fees on safety deposit boxes, stop-checks, etc. This shift seems reasonable. These are all fees which are transparent and in which the consumer can determine if they want the service or not.

So, is this right? Should the government be regulating the banks and forcing them to change their business practices? Some will argue that it's everyone's responsibility to understand the credit card statement and to balance their checkbook so that they don't incur an overdraft fee. Personal responsibility. But to me, that's a specious argument. It assumes that  consumers have the necessary information to make wise choices and effectively manage their money.

Let's consider credit cards. Credit card companies in the past applied payments to the lowest interest rate balance first in order to preserve higher interest rate balances. In my opinion, consumers should be able to choose which balance they pay off first. The same is true of overdrawn accounts. I think consumers should have the option of declining overdraft protection and the potential of having a transaction denied or bouncing a check. That to me is free will and personal responbility.

Those that argue about government involvement in the banking system are putting the banks' rights above the consumers'. Economics has shown time and time again that markets do not operate efficiently. Without some kind of intervention (usually government) corporations will assume monopoly positions vis-a-vis competitors as well as customers that result in inefficient outcomes. 

As far as I'm concerned, the $50 billion saved from overdraft fees, tricky credit card fees, and other hidden charges is money that can be better invested in more productive pursuits.

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.

Credit Cards Strike Back with New and Deceptive Fees

Last Spring, Congress passed a credit card reform bill that eliminates some of the hidden fees in credit card use. A new study by the Center for Responsible Lending finds that the credit cards companies are striking back by raising rates  and fees that are not covered by the legislation. That doesn't surprise me. We all knew that the credit card companies were going to get their revenge in some way. After all, they have Wall Street to keep happy and it would have been out-of-character for them to roll-over and accept the new requirements.

Is what they're doing fair? Utlimately, many would say that if you use a credit card and take on debt, the issuer of that debt can do whatever they want. If you don't like it, don't take on the debt. But that has new meaning today when the general public has given the banks and credit card companies loans to stay in business. To be gouged by the very people that were saved by our taxpayer generosity seems wrong.

So, what are some of the ways credit cards are striking back?

Pick-a-rate: Credit card companies have changed the way they calculate variable rates on cards. Instead of choosing a rate on the last day of the card's billing cycle, they can now choose the highest rate over the previous 90 days. An analysis by the Center for Repsonsible Lending shows that this will increase average credit card rates by .3 percentage points.

Penalty Fees: The Center for Responsible Lending reports that credit card companies have changed their late-free structure so that almost everyone pays the highest late fee possible. Before, the late fee was based on your balance. Now, 87% of card holders will pay the same fee - the highest one.

Miscellaneous Fees: Credit card companies have been adding new, hidden fees since the new act passed. These include:

  • Additional inactivity fees.
  • Heavier fees on international transactions
  • Raising consumer costs by changing cash advance/balance transfer floors, ceilings, and
    related charges.

""The Credit CARD Act that Congress passed earlier this year was a big improvement for American families. But our research shows that industry keeps finding clever ways to get around meaningful reform, and we need a regulator focused on making financial products fair," said CRL researcher, Josh Frank, the report's author."

Still, one has to wonder what the public and policy makers expected. Lenders are going to make a profit or they are going to stop lending. I'd love to see the credit card models which show just how much profit the cards generate per person. If there is plenty of profit in these calculations then the banks will have to accept lower margins going forward. If not, then borrowers are going to have to accept higher fees, higher rates, or no loans at all.

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.