As the Silly Season (meaning Christmas) approaches, you will most likely find yourself using that little plastic card more often than you would wish. There are Christmas cards to mail out, gifts and gift wrappers to buy, parties to prepare for, food to cook, tree to decorate … the list just goes on and on and on.
After Christmas, that’s when you’ll be inundated and tempted by credit card promotions such as Balance Transfers, No Annual Fees, and other enticing offers. Although some of these offers can really help you with your finances, you still have to read the fine print before signing on the dotted line otherwise, you might find yourself falling into a bigger debt trap.
So what exactly should you watch out for or be wary of?
MINIMUM PAYMENTS
Don’t be deceived into thinking that making the minimum payments alone will help you get out of debt. Whilst making minimum payments (which range from 1% to 5% of the outstanding balance) does keep late fees at bay, you are not paying enough to settle your original debt. Remember that interest (which is usually quite high) is calculated based on the amount that is still owing. Even if you don’t put any more purchases on your credit card, paying the minimum amount alone means you’re paying more in the long run because of interest rates.
BALANCE TRANSFERS
Enticing balance transfers with low interest rates is one of the many ways credit card companies get new clients – especially after the Christmas season. Before you do sign up for balance transfer, read the fine print. How long will the bank give you the low interest rate? Is this a blanket rate for all purchases or only for the amount that you’ve transferred? Are there any balance transfer fees you need to be aware of? Once you understand how these all work, you can make an intelligent decision about whether or not it would be worth your while. If you have every intention of paying off the said balance within a specified time frame (and not use that card for other purchases), then balance transfer could work for you.
REWARDS AND BONUSES
Some cards offer their card holders with various rewards and bonuses, the most common of which is 1 air point for every dollar (or hundred dollars) spent. These could be very very tempting – who wouldn’t want to get a little something extra for free right? This incentive can work – but it all depends on your credit card usage and your lifestyle. If you hardly ever travel, there’s no point in getting a credit card that offers travel perks. If you spend a minimal amount on your credit card, then it would take you a lifetime and a half to rack up enough points to get a decent item from the rewards catalogue. Another thing you need to consider would be the card’s annual fees. Cards that offer rewards and bonuses usually have higher annual fees than regular cards. Weigh it up – are the rewards worth the extra trouble and extra charges?
GOLD, SILVER and PLATINUM
‘Gold cards’ have been around since the mid 60’s and was a measure of one’s elite status in the financial circles. Holding a gold (silver or platinum – a lot of other metals have now been added to the mix) showed that the card holder had an exceptional level of income and expenditure. Gold Card holders do have a few perks that regular card holders don’t have (free travel insurance, for example) but usually nothing more. Again, read the fine print and determine if your level of expenditure and lifestyle warrants a gold card. If not, it would be better to settle for a regular card – one with more affordable fees and gives you the benefits you need.
CASH ADVANCE
Most credit cards allows its holders to make a cash advance on their existing credit. Card holders basically pop the card in an ATM and withdraw funds as you would do if you were putting in a debit card. It’s great to have this option especially if you’re running short on cash – what’s not great will be the interest rates, which would be significantly higher than the already high interest rates on regular purchases, that will be charged on that transaction. It’s good to know that you can withdraw money when the need arises, but make sure that you do take out funds when it’s really really necessary.
If there’s one cardinal rule you should remember when it comes to banks and credit cards, is that they make their money by charging consumers interest and fees. So before signing up for any new card, evaluate your lifestyle and spending patterns, compare card benefits and fees, then choose one based on what you really need. AND once you do have that plastic card in your hands, use it wisely. Money is a good slave, but a very horrible master.