Credit Cards - Manage Your Debt by Understanding How Personal Credit Cards Work
All financial people talk about using credit cards responsibly.
To use credits cards responsibly though you have to understand how they really work.
I used to think I charged things on the card then I got the bill and paid.
That's how it happens with your other bills - right? Actually, though it's a bit more complicated with credit card bills and the odds are stacked against you just like at a gambling casino.
If you understand the game, you have a chance of beating the system or at least not letting the system bleed you dry financially.
CNN/Money quotes Stephen Brobeck, executive director at the Consumer Federation of America as saying "From a financial point of view, it's in the company's interest to have consumers carry the largest amount of debt they can possibly repay.
They encourage large balances, with offers to send you another card, raise your credit limit and lower your minimum payment.
" If you check out the earnings of credit card companies you will find they earn large (we're talking billions) amounts of money in late fees.
It is very profitable industry and our ignorance about how credit cards actually work is what fuels their revenues.
So let's look into the mechanics of your credit card billing cycle.
Credit card companies generally mail out your bill 10 days before it is due.
Guess what? It actually takes two to three days for your payment to travel to its destination and then the credit card company takes five to six days to process it.
Unless you mail that payment right away and even then you may not make it (remember when we talked about odds being stacked against you) your payment will be late.
So, if you want to beat the system - mail your payment in immediately, pay on-line or over the telephone.
Don't ever be late with a payment because if you are the credit card company will raise the interest rate they charge you.
To add insult to injury your other credit companies will find out and they will increase your interest rate also.
They can do this legally.
To understand how credit card balance is figured let's look at the two methods credit card companies typically use.
1.
Adjusted balance - Interest is charged on the account balance that is left over after payments and credits during the billing cycle.
Your interest is computed on your average balance during the billing cycle.
Experts recommend you look for cards that use this method as it is the most consumer friendly.
2.
Two-cycle balance - The interest on your average daily balance is computed using both your purchases from that billing cycle and those from the month before.
Consumer advocate Brad Dakake gives this example in an article which appeared in CNN/Money.
"If I charged a bunch of things in February, even if I paid them off completely, that figure would still be used along with my March purchases in order to calculate my daily balance for March.
The average consumer has no idea - it's very sneaky.
" CNN/Money also quotes CardWeb.
com as saying the average late payment fee has increased from $11.
60 in 1994 to $28.
58 in 2002.
So you can see rates have more than doubled in the last eight years! So again experts say PAY ON TIME.
If you can't CALL the credit card company BEFORE the payment is due and see if you can make some arrangements.
It's better than doing nothing.
To use credits cards responsibly though you have to understand how they really work.
I used to think I charged things on the card then I got the bill and paid.
That's how it happens with your other bills - right? Actually, though it's a bit more complicated with credit card bills and the odds are stacked against you just like at a gambling casino.
If you understand the game, you have a chance of beating the system or at least not letting the system bleed you dry financially.
CNN/Money quotes Stephen Brobeck, executive director at the Consumer Federation of America as saying "From a financial point of view, it's in the company's interest to have consumers carry the largest amount of debt they can possibly repay.
They encourage large balances, with offers to send you another card, raise your credit limit and lower your minimum payment.
" If you check out the earnings of credit card companies you will find they earn large (we're talking billions) amounts of money in late fees.
It is very profitable industry and our ignorance about how credit cards actually work is what fuels their revenues.
So let's look into the mechanics of your credit card billing cycle.
Credit card companies generally mail out your bill 10 days before it is due.
Guess what? It actually takes two to three days for your payment to travel to its destination and then the credit card company takes five to six days to process it.
Unless you mail that payment right away and even then you may not make it (remember when we talked about odds being stacked against you) your payment will be late.
So, if you want to beat the system - mail your payment in immediately, pay on-line or over the telephone.
Don't ever be late with a payment because if you are the credit card company will raise the interest rate they charge you.
To add insult to injury your other credit companies will find out and they will increase your interest rate also.
They can do this legally.
To understand how credit card balance is figured let's look at the two methods credit card companies typically use.
1.
Adjusted balance - Interest is charged on the account balance that is left over after payments and credits during the billing cycle.
Your interest is computed on your average balance during the billing cycle.
Experts recommend you look for cards that use this method as it is the most consumer friendly.
2.
Two-cycle balance - The interest on your average daily balance is computed using both your purchases from that billing cycle and those from the month before.
Consumer advocate Brad Dakake gives this example in an article which appeared in CNN/Money.
"If I charged a bunch of things in February, even if I paid them off completely, that figure would still be used along with my March purchases in order to calculate my daily balance for March.
The average consumer has no idea - it's very sneaky.
" CNN/Money also quotes CardWeb.
com as saying the average late payment fee has increased from $11.
60 in 1994 to $28.
58 in 2002.
So you can see rates have more than doubled in the last eight years! So again experts say PAY ON TIME.
If you can't CALL the credit card company BEFORE the payment is due and see if you can make some arrangements.
It's better than doing nothing.
