Friday, May 24, 2013

Pain and Gain – The Best Ways to Use Credit Cards

The movie Pain and Gain is about three bodybuilders who get caught up in an extortion ring and kidnapping scheme that goes wrong. The same happens with consumers who get approved for credit cards use them responsibly for a while then lose track of their spending and experience more pain than some of the gain or benefits of using credit cards.

Some consumers have used credit cards to buy cars, pay bills or fund businesses which are all risky options. Credit cards should be used as a secondary source of payment and not a primary source of payment. Unfortunately most consumers use credit cards as a primary source of payment which leads to mounds of debt, bad credit and in some cases legal action.  The dangers or pain of using credit cards are:

  1. Using them to make everyday purchases which can lead to debt
  2. Buying items you cannot to afford to pay off
  3. Risk of identity theft, fraud and scams
  4. High interest rates
  5. Penalty APR (annual percentage rate)
  6. Excessive fees
  7. Short or no grace periods
  8. Not reading the terms and conditions of the credit card
  9. Funding a business
  10. Mixing business and personal credit
  11. Cash advances which usually have interest rates of up to 10% more than regular purchases
  12. Leads to impulse shopping
  13. Tend to spend more than paying with cash

Here are the best ways to gain when using credit cards.
  1. Use. Use your credit card at least once a month to make a small purchase. If you go for long periods without using your credit card the company may close your account which will lower your credit score or charge an inactivity fee.
  2. Programs. If you have a credit card with cash back or rewards points you have to spend a certain amount of money to earn a reward which in most cases is not worth the trouble because the program is designed for the company to make money. Rewards cards only work if you pay the balance in full each month.
  3. Rentals. Many credit cards cover damage or loss when you rent a car which is cheaper than the insurance coverage offered by rental car companies and can be used in addition to your car insurance coverage. 
  4. Protection. Some credit cards offer protection programs such as price protection that will refund the difference if you find a lower price for a product bought within a certain time frame. Another program is extended warranty coverage that will reimburse you or cover the cost of a replacement if an item purchased is lost, stolen or damaged. When shopping at grocery stores there is a risk of skimming your debt card number and PIN.  However, if you purchase with a credit card it is much easier to recover any lost funds due to fraud liability protection.
  5. Pay balance. Pay balance in full at the end of each month or keep at 20% or less of the credit limit to boost your credit score.
  6. Send extra. Send at least 3 times the minimum monthly payment each month to pay down your balance faster if you cannot pay the balance in full.
  7. Change the Date. Changing the date may make it easier to pay your bill. Also, find out what the billing cycle is for your credit card, billing cycles usually range from 29-33 days. Ask the company if you can change your due date. This will save you money in interest and finance charges especially during months that have 31 days such as January, March, May, July, August, October and December but only works if your billing cycle is 29 or 30 days.
  8. Review. Review your statement each month to see any new changes to your credit cards or terms and conditions of the card.  Your due date or interest rate may be changed. 
  9. Interest rate. If you have been a customer of the credit card company for at least 2 years and have been making your payments on time ask for an interest rate reduction.  If you are unsuccessful, call back and speak to a supervisor.
  10. Deliveries. If you purchase an item online and pay for delivery it is best to pay with a credit card which provides coverage under the Fair Credit Billing Act regarding billing errors, damaged items or disputes regarding delivery of the item purchased.
  11. Recurring Payments.  If you pay a recurring bill it is best to use your credit card to prevent overdraft fees, however, if you don’t check your credit card balance regularly you may incur over-the-limit fees.

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