Credit cards are full of temptation. They’re lines of credit that turn into cash when you use them anywhere they’re accepted. Run the card, get charged, go home that day with what you bought. Except the use of that card comes with a price. You’re essentially renting money from the bank when you use an interest-bearing credit card, especially if you carry a balance every month. And that’s what the card issuing bank is relying on: you carrying a balance. Following are tips to help raise awareness of some of the ways credit cards cost you money.
Monthly Subscription Charges
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A majority of business models have gone to a monthly subscription fee for their services. Netflix, software products, the gym, even items you use on a regular basis have transitioned to a monthly fee instead of a pay-as-you-go policy. This is all well and good if you’re using the products and getting value out of your purchase. But what if you’re not? What if you’re paying rent on a service that you’re not using? Your card gets charged every month and you pay interest even though you’re not accessing the service. Make it a point to stop all of your unused subscriptions, if possible, and rejoin when you’re ready to use them again.
The Psychology of Cash Versus Credit
When you have cash in your pocket, you can only spend what you have, no more. In contrast, you can spend up to your limit on a credit card if you so desire. And credit cards are touted for their ease of use, ease of replacement in the case of theft, and even as an alternative to cash. But what those ads aren’t telling you is that you should only spend what you can afford to pay back every month. And why should they? The goal is to have you paying interest on the money you borrowed. Only use your card for what you can pay back in a reasonable amount of time, and consider carrying a check with you if you know you’re going to make a large purchase. A check is still a viable instrument for buying merchandise and keeps your money safe in the bank.
Interest and Fees
Much has been made about interest and fees, but you might be asking why. It’s because credit card fees range anywhere from six percent to 24 percent on an annual basis. If you’re not getting a card with a low annual percentage rate, you’re spending a lot of money every month to rent money from the bank. Add into that the sometimes punitive fees that get charged if you’re late by one minute or an annual fee for the privilege of using the card and it all adds up.
Don’t stop using your credit cards. After all, they are the basis for your credit score. But what you need to do is use them responsibly. Go through your monthly statements, check your interest rates, and watch what you charge to prevent your cards from draining your wallet.