Rules of Proper Credit Card Ownership

Understand Interest Rates

When you take a proper look at what credit card ownership really is, a fancy term called the Annual Percentage Rate or APR comes up.

This is important to understand since the companies are not simply giving you free money now for nothing later. The APR represents the percentage of interest you will have added onto each dollar over the course of a year should it not be paid off.

It applies monthly in a monthly finance charge that is formed by multiplying the daily period rate by the days in the billing cycle and the average daily balance. Even if the promotional campaign says that the APR is 0% initially, the card will eventually accumulate interest based off APR and you will need to understand those facts by reading the fine print.

Pay off Your Entire Balance Each Month If Possible

The ideal scenario for credit card ownership is that you pay off the money on the account each and every month without missing a dollar. If you have no balance carry over to the next month, then you will not be charged interest.

This is of course often a little unrealistic. Things come up and you might not have the money to pay everything off immediately. However, this is a good goal to shoot for. The quicker you can pay off each balance, the less money you are going to be paying in interest for the long run.

Formulate a Manageable Budget

One major reason most people get into massive credit card debt is that they don’t keep their spending in check. They spend far too much money without doing the math and making sure that they can reasonably pay off the account.

If you create a budget and stick to it, then you will be much more aware of what you are actually doing with your finances. What you don’t want to have happen is to keep using the card and then one day take a look at your credit card statement and freak out.

Never Let Your Payments Go Late

If you let your payments go late, then you can end up in credit card default. This does horrible things to your credit card rating and your interest payments. Make sure that you can not only make the minimum payments at the end of the month but also that you do it on time, preferably before the last minute.

If you end up at a point where the payments are too much for you to make, then looking into debt consolidation options would be a good idea.