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How To Save Money On Credit Cards

by: sahil | last updated: August 25, 2009
Category: Saving on Everything | Tags: Credit cards.

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How To Save Money On Credit Cards

Credit cards and credit card related issues have not only become complicated, they have also become more and more debatable. The reason for this is not only the recent recession but also the way credit cards work. Many people have found themselves in credit card debts during the recession. Some ways of avoiding credit card debts and saving money on them may help in your long term financial goals.

Building a credit rating. Many people including students and youngsters find themselves financially stranded as many credit card companies refuse their applications for credit cards. However, there are other options that can help in procuring plastic money. A secured credit card helps in building a good credit rating. Secured credit cards are those which usually require an account to be opened with the bank. This account is a guarantee for the bank in case of failure of payments by the credit card holder. Secured credit cards are a good way of ensuring that you start off with a good rating and save yourself from bankruptcy.

Types of rewards. Many credit card companies give rewards on credit cards in the form of cash backs, travel points, balance of account transfers, and gift certificates. Choosing the right card will help you in enjoying these benefits to their full extent. Frequent travelers can opt for cards that have travel points and those who like shopping can choose the cash back one. These rewards are usually accumulated over a year and redeemed at a particular date and are long term in nature.

Interest. The best way of saving money on credit cards is to avoid interest. Many people end up paying twenty to thirty percent interest. This means that they are in effect reducing their net income by that amount. Almost all credit card companies will charge an interest if the cardholder has not paid in full. This interest is applied to all the transactions done from the beginning of the month or the stipulated period.

Prepaid cards. These are not credit card per say; however they are a good way to ensure that you do not pay interest on the card. These are usually used by teenagers or youngsters who do not have any sources of income. An account is opened in the concerned bank and the credit card is made available. This simply means that this is a “purchase” of a credit card. Minors above the age of thirteen can apply for such cards with the help of their parents.

Credit history. Credit history is the most important factor in personal finance since a person’s previous transactions dictate the credit rating. Credit rating is an important tool for lenders to judge the capability and honesty of the borrower. This history of transactions remains on record for at least seven years and can have long term financial repercussions. Maintaining a good credit history becomes imperative in order to secure future financial deals in a cost effective manner.

Over-limit fees. If the credit card goes over the limit then many companies levy a penalty in the form of a fixed amount of fee. Many credit card companies let the credit go over the limit deliberately to pinch interest or fees from the cardholder. This can be avoided by calling the credit card company’s customer service and intimating that you do not want it to go over the limit. They will place a cap on it and the transaction refused if the credit is already used up.

Cash advances. Cash advances are usually the culprit when it comes to the amount of interest paid. Cash advances work on the principles of a debit card. This means that you can withdraw a stipulated amount per day or week using the credit card. The catch is that usually there is no interest free period for cash advances. Furthermore cash advances may have a higher interest rate. It is best to avoid cash advances and use a debit card for such purposes.

The credit card generation. Many students and young people have started using credit cards without knowing or realizing the long term financial repercussions. This is perhaps the best way to lose a good credit rating or even worse - start off with a bad one. If you are a parent, avoid getting a credit card for your children until they get a job and start earning. This advice comes from one of the richest man in the world, the wizard of Omaha, Mr. Warren Buffet who strongly opposes the use of credit cards by children and college students.