Debt Management and Credit Cards

Using credit cards can get you things that you couldn't get otherwise. Using credit cards unwisely, however, can cost a lot and even land you in trouble. If you understand some of the basics about how credit cards work and how to manage your debt, you can get the things you want and avoid some of the expense and hassle that credit card holders might experience. Start with the basic credit card. This bit of plastic carries a Visa, MasterCard, American Express or other logo. You receive a set credit limit that the lender assigns based on your credit score, income and other factors. You can then charge purchases up to the credit limit amount. The lender bills you monthly and you are obligated to make at least a minimum payment each month. If you carry a balance, you will incur finance charges – interest – on the outstanding balance. Premium credit cards (often named Gold, Platinum or Premier) offer incentives and benefits beyond those of a regular credit card.



For example, some credit cards are linked to an airline's frequent flier club, and generate frequent flyer miles based upon the amounts charged. A Premium card might also offer enhanced benefits like travel or purchase insurance, rental car insurance coverage, or membership in an affinity group, such as an alumni association or interest club.



These cards usually have higher fees and greater income requirements. The idea of building up miles might sound good, but the reality of these cards is that the interest costs and other fees can outweigh the benefits of any miles or other incentives received. Limited purpose credit cards are issued by particular stores or online sellers. These cards, such as gas company credit cards or retail store credit cards, can be used only at the issuing retailer. These cards are sometimes offered in connection with making purchases of particular items or items that cost over a certain amount. Often the interest rates on these cards are as high or higher than those of regular credit cards, so watch what you sign up for. Prepaid credit cards work like regular credit cards, except that funds must be deposited into an account in order for the credit card to be used. There are no interest costs associated with these cards, because the card issuer isn't lending you money – your money is on deposit. Prepaid credit cards provide convenience and security, and they force you to spend only what you have.



The more cards that you have, the harder it will be for you to manage your credit. Each card will send you a monthly bill, with different minimum payment amounts due on different dates.



Effective debt management is often easiest when you have one or two credit cards only.



You want to keep your overall balance as low as possible, because each day that passes with a balance means that those interest charges are racking up. And if you have more than one card, compare the interest rates, and pay down the higher rate card balance first.

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