Chances are good you've noticed an increase in how many credit card offers the banks have sent you. If you have bad credit, you might question the point of giving them a look, but it might actually pay off. Right now, the biggest banks in the nation want to build up their portfolios for credit cards by having existing customers get more plastic. To help up the incentive, they're providing extra goodies.
Those who are good with their finances likely already know the feeling of credit card companies throwing their cash to try and get them as a customer. Issuers do everything possible, even offering straight bonuses for hundreds of dollars, doing everything they can to grab a hold of the economy on its rebound.
Credit cards are in the unique position of offering great returns thanks to low interest rates. Banks don't have to pay as much to fund, and consumers are getting confidence to borrow credit again. In October 2013, credit card debt went up $3.98 billion, followed by an increase of $457.8 million the following month, achieving the highest level in the previous three years. Charge-offs and delinquencies are down as well, fostering the banks' hunger to loan out money via credit cards.
Credit cards are generally sold as wise ways to make a payment. The sign-on bonuses are generous and certainly tempting, whether it's a steep discount at a retail store or the promise of free frequent flier miles. These rewards make it easy to overlook the interest rate, especially for those who don't actually believe they'll ever borrow money with the credit card. As long as you reach a good balance between sign-on rewards and interest rate, the rest is all about being smart with your money.
Credit limits are usually more than what you make each month. Large lines often exist to tempt people into purchasing more than they can afford, leading to interest payments and generating revenue for the loaner. It's a tactic that works, although it's not one that has to spiral out of control; if you're capable of maintaining a minimum payment, you won't run the risk of defaulting.
Penalty Rates May Extend to All Accounts
If you elect to take on an additional bank credit card, realize that making a late payment on just one of the credit cards could cause a penalty rate on all cards, even if those payments were on time.
Just one mistake can cost more money in interest as long as you have an existing balance on the credit card. Be sure to keep logging in to your accounts to monitor your interest rate so you are not taken by surprised.
Checks Can Cost More
If you get bills in the mail from the bank for your credit card, don't write a single check for all your bills in the assumption that this saves time and money for everyone. In fact, many balance transfer checks will result in a 3 to 5 percent fee for the amount written on the check. Even if the interest rate is less than what you pay on a different account, the fee negates that. As such, it's best to separate your checks or pay online.
If you feel you're paying too much in interest fees, you may be able to negotiates for a lower rate or take an offer for a balance transfer credit card in an effort to reduce the burden of your debt.
Credit cards are one of those necessary conveniences of modern times, but how you treat them is completely up to you. Be sure you have the money to pay for most of your charges; they offer perks and convenience, but mistreatment can lead to lifelong debt.
Good Debt and Bad Debt
In today's world, it is fairly impossible to live without any debt. Most cannot pay for college or housing with hard cash, but too many allow debt to get out of control.
According to experts, it's ideal to keep your long-term debt to 36 percent of your gross monthly income or less. This is a metric that a mortgage banker will look at when looking at your creditworthiness.
It's easy to spend more than you can reasonably afford to pay back, especially if you are going to pay by credit card. Households in the United States that have at least one credit card also hold nearly $16,000 in debt.
On the other hand, it's not smart to avoid all possible debt if it means you can never save any money. The goal is to figure out which debt is smart to take on and which should be managed with your money instead.
In this case, good debt means something you need but aren't able to afford yet without making liquidations or wiping out savings accounts. If the debt makes sense to take on, then take on the debt on your credit card as long as you can afford making the payments each month.
Bad debt is something you can't afford but also don't need, such as a vacation or even that one little tool or appliance at the store.
Sometimes, it isn't about how much you can afford to spend but whether your money can work harder than it does now. If you have low interest rates, think about how much you'd spend on interest compared to how much you might make in an investment. If you might make a higher return investing your cash compared to taking on debt, then it might make sense to borrow while rates are low.
If you want to revolve a balance, consider offers that offer low APR instead of seeking generous bonuses. On these cards, the APRs tend to be somewhat higher, so you would end up paying more in interest than needed.
Even though now that those with bad credit are being courted once again, those with the best credit still have the best rates available. Regardless of your previous credit history, however, you must always think beyond the sign-on bonus and introductory offer, seeking a credit card that offers the most reliable valuable for long-term debt.