CREDIT CARDS are one of the most useful, yet most dangerous, modern financial inventions.
Use them wisely and you can make money from them. Use them unwisely and you can lose everything you have.
The worst mistakes you can make with one are:
Paying only the minimum balance. You will lose the interest-free period on new purchases and it will take ages to repay debt.
Too many cards. It is harder to keep track of total debt.
Using cards for non-essentials. Getting into debt to buy luxury goods will set you back financially.
Not getting the best deal. Big differences exist between cards when it comes to interest rates and features. Choose the card that is right for you.
Forgetting to pay or paying late. It will add to your interest bill and your credit rating may be affected.
Having too high a credit limit. The higher your limit, the more you may be tempted to spend.
Being tempted with low-interest offers. Look at the fine print before accepting an offer to get a new card at a low interest rate.
Refinancing without reducing your limit. Increasing your mortgage to repay your card will reduce your interest if you are maxed out, but only if you stop spending on your card.
Set your card's limit to a level you can afford to pay off every month by direct debit. For emergencies, have a second card with a higher limit hidden away.
Liz Koh is a Paraparaumu-based financial adviser. Her disclosure statement can be obtained free by calling: 0800 273 847. Author of Your Money Personality; Unlock the Secret to a Rich and Happy Life, she can be contacted be sending an email to: liz.koh@moneymax.co.nz or view: www.moneymax.co.nz
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