Contrary to what some may say, credit cards, by itself is not necessarily a bad thing. It can be used as a tool that allows you to purchase much-needed items while managing your cash flow.The only time it becomes a bad thing is when credit balances remained unpaid and interest accumulates.
Credit companies are aware of these pitfalls and have begun offering new cards that feature a 0% APR. This means that you can charge purchases to your card without needing to pay interest.
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Why would credit companies do that? It's because lending business is now more competitive than ever. So these companies look to expand their markets by tapping methods they traditionally wouldn't before. That is partially also the reason why almost anyone can be offered a credit card - even those with bad credit.
Sounds great, right?
However, you may ask, "how do these companies manage to practically give money away? Aren't they supposed to profit from the interests on the money they lend?"
To answer that question, you need to be informed on the often-untold catches to these kinds of deals.
For one thing, most zero percent offers only apply for a limited time, often averaging 6 months to possibly a year. People who are unaware of this often end up paying for a lot of things on credit well past the limited period. What happens then is that they find that they have been spending beyond their means.
That situation can be compounded by the fact that once the zero interest offer period expires, interest rates can go up to as high as the credit company wants it to. There have been cases where interest rates jacked up from 0 to 20 in a single billing period.
On the other hand, a 0% APR comes in handy when making balance transfers. A balance transfer is what you do when you carry over payments from one card to another. For example, if you have $1,000 due on a card that has a monthly interest of 20%, a balance transfer to another card with 0% can help manage that debt.
However, to make this work, you need to make sure of two things: First of all, establish that the zero percent offer applies to balance transfers, as some do not do so. Also be aware of applicable fees for making that transfer. Get the answers to these first before considering balance transfers.
Second, make sure you can pay off the transferred balance within the limited offer period. Remember that interest rates can go up after the offer period so not being able to complete the payments by that time may just find you jumping from the proverbial frying pan and into the fire.
Now that you know more about 0% APR offers, here are some reminders for the judicious use of your credit card.
- Before using any card (especially ones that are offered outright, instead of applied for), read the fine print regarding the terms and conditions of the card's usage. A lot of people skip these and miss out on very important information - just like the ones mentioned above. Understanding these terms will and can save you a lot of headaches, not ton mention money, in the future.
- As much as you can, only use your credit card for cases when cash is not available. Because of the convenience of carrying a single card, a lot of folks end up paying for everything, even rent, with a credit card. A habit that will definitely rack up more debt for you.
- Try to limit your purchases to much-needed and essential items. This is the often-cited "needs versus wants" rule. Avoid impulsive buying whether with cash or with a card. Even if you did pay with cash for something you may not need, you may be misdirecting that cash meant for other more important items, which in turn, may force you to pay with a credit card.
Being able to cope with credit cards and everything else that comes with it is simply about wisely managing your money. Remember that credit cards are tools that allow you more flexibility. Learn to avoid the pitfalls that can overwhelm you, while mastering the advantages it can bring.
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