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192 The 1-2-3 Money Plan we said previously, and many incur outrageous finance charges that sometimes top 30 percent. Late-payment and over-the-limit fees are also punitive. Those disad-vantages, if they apply to you, dwarf any advantages of credit cards. If you are philosophically opposed to credit cards, I have no problem with that. Don’t use them. Just realize you’re forgoing some convenience, consumer protec-tions, and rewards that credit cards provide. But if you spend less as a result of using cash only, you could be adequately compensated for your philosophical stand. Here’s how to get the most out of your credit cards. Credit Cards, 1-2-3 1. Never carry a balance. 2. Know your perks. 3. Maintain your card. 1. Never Carry a Balance Never is a strong word. But carrying balances on credit cards from month to month is so destructive to your finances that it’s worth using strong language. For those who carry a credit card balance from month to month, credit cards can be downright evil. Interest rates can easily top 20 percent and push toward 30 percent, which is outrageous. You could be in big money trouble if you’re paying only the minimum pay-ment each month. It’s wildly expensive. See Figure 6.4. From the Library of Wow! eBook Credit When Credit’s Due 193 What if you made only the minimum payment of $200 on a balance of $8,000? Credit card balance: $8,000 Interest rate: 18% Minimum payment: $200 Years to pay off: 30 Interest paid: $11,615. FIGURE 6.4 Minimum payment predicament So, paying high interest on credit cards, if you can possibly avoid it, is foolish. If you regularly carry bal-ances, you have already figured that out. Yet, nearly half of American households carry a bal-ance from month to month, according to the Federal Reserve. You can view this statistic a couple of different ways. First, it’s shameful that almost half of American households are borrowing money on their credit cards, with many paying outrageous interest rates. That’s even truer if much of the balance includes dinners out, unnecessary electronic gadgets, and other highly optional charges. The second way to look at the statistic is that half of Americans carry no balance at all. So, if you justify hav-ing a balance “because everybody does,” it just ain’t so. From the Library of Wow! eBook 194 The 1-2-3 Money Plan Also, don’t take comfort in reports that say the aver-age balance on credit cards is $10,000. MSN Money columnist Liz Pulliam Weston is the foremost crusader against this so-called fact, which originates from CardWeb.com. It has been reported by the media liter-ally hundreds of times in recent years. CardWeb.com reported that in 2007 outstanding credit card debt was $9,840 per household. Weston points out that the num-ber only includes households that have a credit card, which eliminates from the average all those households with zero balances because they don’t have cards. The stat also includes business credit cards, which can have huge balances, especially with business travel. What business credit card balances have to do with household debt, I have no idea. Just as important, it reports the total balance as a snapshot, regardless of how many of those people paid off the balance before incurring finance charges. The point is, not everybody is carrying credit card balances, and you shouldn’t either. As I alluded to earlier, part of the reason people run balances on credit cards is because credit cards don’t seem like real money. Handing over plastic to a cashier doesn’t stimulate the same emotional pain as handing over a fistful of twenty-dollar bills. Indeed, studies have shown that consumers spend more with credit cards than cash, which explains the growing presence of card readers at every retail cash register. Retailers want you to overspend. So, even people who pay off balances every month could be overspending just by virtue of the payment method they’re using. From the Library of Wow! eBook Credit When Credit’s Due 195 2. Know Your Perks Despite all those negatives, credit cards have advan-tages—for “deadbeats.” You would think credit card “deadbeats” is a term for people who don’t pay their bills. But, in fact, deadbeats are what credit card com-panies call customers who pay off their balances each month. These customers don’t pay the issuer any inter-est or fees. In essence, they give themselves a free ride by enjoying all the advantages of credit cards and suffering none of the downsides. Don’t feel too sorry for credit card companies, though. They still make money from the merchants you buy from. Being a credit-card deadbeat is a good thing. One of the advantages of credit cards is they help establish and maintain your credit rating, which trans-lates to real money. You can get less-expensive mort-gages and car loans when you have a better credit rating. And you might even get cheaper auto insurance, as some insurers now use credit ratings in determining your premiums. Another huge benefit is putting the credit card com-pany between the merchant and your cash. That’s why it’s best to use a credit card for online and mail-order purchases in case a dispute arises. Cards have many fringe benefits too. Most people overlook these perks. They include purchase protection, extended warranties, merchandise discounts, travel insurance, rental car insurance, price protection, lost luggage help, favorable exchange rates on foreign cur-rencies, and others. From the Library of Wow! eBook 196 The 1-2-3 Money Plan I won’t go into details about these offerings because they vary by card. But make a note on your to-do list to investigate all the perks of credit cards you carry in your wallet. You can read about the benefits online at the card-issuer’s Web site or call the phone number on the back of your card and ask, “What are my card perks?” QUICK TIP Merchants can’t require a minimum purchase for using a Visa or MasterCard credit card. A provision in their agreements with card companies requires them to accept charges of any amount. Of course, there’s not much you can do about a merchant refusing to make a small sale, except report them to the credit card company. 3. Maintain Your Card Maintaining your card doesn’t mean keeping the card free of fingerprints or making sure the signature on the back is legible. It means continually negotiating better terms on your credit card account. One secret of the credit card industry is this: As bad as card issuers sometimes treat their customers, they hate to lose them. It’s very expensive to acquire new customers. So, threatening to stop using the card—or better yet threat-ening to transfer your balances to another card—can be From the Library of Wow! eBook ... - tailieumienphi.vn
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