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Using a credit card

It is mentioned in the first two sub sections of this guide that credit cards are a tool of convenience and no apologies will be made for re-iterating this until the screen goes blue. Misuse of a credit card can cost you dearly. It is not free money and it certainly should not be seen as a tool that allows you to buy now, and worry about it later.

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When used properly credit cards can help you budget as they enable you to pay for your monthly outgoings once your monthly incomings have been banked, giving you a clear appreciation for how much you are spending compared to how much you are earning each month. Credit cards, by deferring the payment for goods, are also useful in that they allow you to make the most interest out of the money that you have before it is gone.

However, if you do abuse your credit card and do not keep up with the monthly balance pay off then the interest will begin clocking up at a rate that can be nothing short of frightening. Always remember that regardless of your credit limit, regardless of the length of your interest-free period, every single penny that you spend on your credit card has got to be paid back, in full, at some point in the future.

When using your credit card you must always be wary of a rise in your credit limit without request, this is not a good thing, this does not mean you have more money, just that you are potentially more capable of higher levels of debt. It is not unlikely that such an increase is indicating that your relationship with money is becoming a problem.

Do not expect the credit card issuer to take responsibility and cut you off and do not expect the bank to give you a break either, whilst you might argue that your card issuer should be responsible in their lending, your spending habits are ultimately, and totally, your responsibility!

Credit card debt is, of course, by no means unmanageable. However, you must be very aware of what you are getting into if you are unable to pay off your balance on a monthly basis. Be sure that you understand your credit card issuer's rates and do not be fooled by monthly rate quotes, a monthly interest rate multiplied by 12 is not the annual interest rate; do not forget to calculate the interest that you will be paying on the interest!

In order to make the most of your interest-free period it is worth trying to make your more expensive purchases right after a statement is issued so that you benefit from the full 45-59 (depending on the individual card) days of the following interest-free period. If you make a big purchase just before your monthly statement is issued you are going to have to pay for it in the next 14-28 days following the statement.

Finally, drawing out cash on your credit card is expensive and should be avoided at all costs well, not literally, but you get it! You start paying interest at sky-high standard rates from the moment that you withdraw your cash until every last penny is paid off, including interest. The same also applies for any other instant transactions; such as placing internet gambling deposits. Also credit card issuers charge you hefty fees (at least 1.5% of your withdrawal with a minimum of £2) if you use your card to withdraw cash. Stick to your debit card then for your cash withdrawals!

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