In 2017, American credit card debt reached its highest level since the 2008 financial crisis. Some say this is great, consumers are gaining confidence in the economy. However, no matter how high the credit card debt becomes, it doesn't mean that people are spending the money wisely. Credit cards can be very valuable when used responsibly. But let's face it, people buy liabilities with their credit cards in the interest on top of those costs, reduces your net worth further. To avoid getting burned.
You need to understand how credit cards work and have a plan going in. Credit cards allow you to borrow money now, which you'll pay back later to purchase goods and services. credit card companies call these loans, lines of credit and the better your credit score, the higher your line of credit can be. If a credit card company offers you a $1,000 line of credit, you can spend up to $1,000 without incurring penalties once you pay some of that back Back take $700 for instance, you open up $700 for spending again, this concept is called revolving credit. Like I said before credit card companies charge you interest on the purchases you make in return for allowing you to borrow the money. You can pay back to full balance each month to avoid paying interest in some cases.
APR is related to the interest you are charged. It stands for annual percentage rate. APR is calculated by multiplying the periodic interest rate by the number of periods in that year. For example, if a credit card charges 1% per month, that's 12% APR. This is how companies market their interest rates and it does not contemplate compound interest. A p y stands for annual percentage yield, annual percentage yield does contemplate compound interest and it tells you what you're actually Paying on your loan or credit card.
Using the numbers from the example I just showed, notice how the API is higher than the 12% APR, you can avoid the higher rate and eliminate the effect of compound interest by paying off your full balance each month. API grows larger in comparison to APR as the number of compounding periods increases. When you're comparing credit card offers. Look for the AP why not the APR thanks will often quote the APR, so pay attention. responsible use of a credit card is an excellent way to build your credit score. Make sure to keep your utilization below 30% and make at least the minimum payment on all your credit cards each month.
I recommend paying off the total credit card balance each month to stay on top of things. Many credit cards will give you cash back from making purchases and or paying down the balance. They may have discounts on Traveling hotels, and many of them can categorize your expenses for you, which helps you budget. Just don't go too crazy over these offers, the smart thing to do is not increase your spending just to get money back or discounted hotel stay. A great example is an offer which gives you $300 cash back for spending $1,000 on the card in three months. Instead of paying cash, use the card for your usual expenses and get the $300.
After that, use the money in your checking account to pay off the full balance on the card. Credit cards are regulated under the Fair Credit billing act where the most you can be held liable for a fraudulent transaction is $50. Debit Cards don't follow these regulations and can cause much more of a headache when trying to get your money back. Most credit cards also offer a zero dollar liability clause where they agree to cover all fraudulent charges made on the card. If you currently have credit balance With high interest rates a balance transfer can help you get out of debt faster. zero percent APR balance transfers allow you to move high interest credit to a new card with no interest.
The zero percent interest can last up to 18 months, allowing you time to pay down the interest free balance on the new card before the offer goes away in the interest kicks in. Take caution when using this approach. It takes discipline not to run up big balances on the old card that you transferred the money from which completely defeats the purpose