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CREDIT CARDS: My Personal Learning

CIMB Petronas MasterCard Gold Credit CardImage by liewcf via Flickr
It was almost a year now since I first used my credit card. Although I already received it months before, I only used it several months later. The main reason behind my reluctance is a mix of skepticism and fear that I may misuse the card and mismanage my debts.

Anyway, almost one year after my first use, I have learned many things from it. I have learned some of the GOOD and some of the BAD sides of it. I wrote this article especially for those who are not using credit cards, for those who are planning to use credit cards, and for those who have just started using credit cards.

Here are some of the things I have learned.

1. Credit Card is a great convenience!

Yeah, probably one of the greatest advantages of having a credit card is the convenience it may give you. You don't need to bring cash all the time when you do shopping, all you need is your card. Also, credit cards are good for emergency cases. There are situations when you badly needed to purchase something but you have no cash at hand. In these cases, credit cards can be a great help.

Also, as everything are going into the web--shopping, purchasing of tickets, etc--credit cards are getting more and more important since most online transactions requires it.

2. Discipline is BADLY needed!

In order to continue to enjoy your use of credit card, you must discipline yourself. It may take an additional effort to do the following.

First, make sure you regularly check you balance so you will know how much you've already spent. Don't rely on monthly statements. One month can be a long period of time and you may not realize that you already exceeded your credit limits or your "paying limitations". When this happens, you might be shocked when you bill arrives.

3. Use Credit Card ONLY for emergency

Some people may choose to use credit cards even though they have available cash on their wallets. There’s nothing wrong with this, but be careful with this habit. You may be deceived in thinking that you still have enough money although in reality, you don't, because you just used your card instead of cash. When you choose to pay by card instead of cash, make sure you separate the cash equivalent from your regular money and as soon as possible, pay the full amount before you forget. If you can't do this, better make it your resolve to use the card only for emergency situations.

4. Read the terms of conditions.

Probably 99% of all card holders do not even attempt to read the terms of condition issued by the bank. And I will admit that I am one.

It is highly recommended that you read all the terms and conditions so you will be properly informed of all the fees and penalties they might impose upon you.

5. Limit the number of your credit cards to at most TWO.

Many are enjoying having plenty of credit cards on their possession. Yeah, it may add a bit of confidence on your side but it also adds to the risk of mismanaging your debts and fall to the trap of being unable to pay your debts. Limit your number of cards to a manageable quantity. For me it’s two to there.

6. Always remember that you don't own the value of your credit card!

No matter how high is your credit limit, it cannot erase the fundamental truth that you don't own it. All the things you purchased through it are LOANS. And always remember that credit cards are the highest interest-paying form of LOAN. Imagine your 3% monthly interest? It might seem small but for the whole year, your 3% is just as bad as 36%.

7. Don't be deceived by the MINIMUM payment!

It is the providers' strategy to make your required minimum monthly payment small. The reason behind this is that you may feel that it's easy to pay it. But the truth is, on the next billing, they will put an interest on your average daily balance which may even be higher than your minimum payment. This is the most frequent the reason why many fell into the trap of mismanaged debts.

As a conclusion, credit card is like fire. It can be a source of comfort and energy. But when left uncontrolled, it can also burn you by putting you on the quicksand of unending debts. If you have been in this situation what can you do? How can you escape the trap? Please see the next article on the tips on how you can recover from mismanaged debts.
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