Manage Credit Card Use

Credit cards are a great instrument to have in your wallet. It is the preferred method of payment at almost all merchants — especially at college. And if your wallet or credit card is stolen, you are protected against fraudulent use.

But, credit cards used for the wrong reasons can get you into deep debt. Consumers have the tendency to spend more using their credit card than if the same purchase was made with cash.

Understand These Basic Facts

• According to the American Bankruptcy Institute, nearly 85-90% of bankruptcy filings were due in part to excessive credit card debt.
  
  
• Households receive on average 20 credit card offers per year.
  
  
• Credit card companies make money when you become a "revolving" credit card holder — which means the holder maintains a balance from month-to-month.
  
  
• Credit card companies make money when you pay only the minimum required amount — which minimum amount is interest plus a small percentage (around 0.5%) of the balance outstanding.
  
  
• Credit card companies make money when you accept and then spend up to the credit limit amount offered.

With these facts in mind, the card company's business strategy is to get you to:

• accept their card using pre-approval offers;
• charge out the maximum credit limit awarded;
• pay interest-only payments each month;
• and maintain a credit balance from month-to-month.

Now consider this:

If you paid just the minimum payment on a $4,800 credit balance at the average annual rate of 17% plus 0.5% for principal reduction, it would take you over 21 years to pay off your balance (considering that you did not have any other charges).

That means paying $13,376.35 in interest charges alone, for a total repayment of $18,176.35 for the privilege of charging $4,800!

No wonder that credit cards are one of the lender's most profitable product lines.

How Best to Select Your Card

1. If you can budget and control your spending with a credit card, apply for a reward credit card to build award points:
   
   download our article on (PDF file):
   managing credit card use for reward gain
   
   
2. if you are unable to control spending because of the ease of credit cards, consider using pre-paid cards to manage spending:
   
   view our information on:
   how pre-paid cards can control spending