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10 Ways Credit Cards Can Help You

Wherever you go, you will hear that credit cards are poison. This is not 100 percent true. Like a vaccine, where the poison is used to help the body fight a certain health problem more effectively, you could use your credit card to help you manage your money better.

1. Bonuses and rewards. Most credit card providers show their appreciation to a good customer (read that as the person who pays his/her bills on time) by offering reward points and bonuses that are redeemed as cash or gifts. You can save anything from $50 to $250 with such offers making it worthwhile to use the credit card.

2. Cash back policy. Many credit card providers offer cash-back when you use your card regularly (and make timely payments). The cash back could earn you anything from 1-5 percent, which can amount to a small fortune over time.

3. Interest-free installments. Purchases through credit cards often allow for (three to eight) interest free installments that help make large purchases have less of a burden on your monthly budgets.

4. Safety with money. If your debit card is stolen and misused, it will be a long time before the money that disappeared from your bank account is returned. This can mean bounced checks, late payments and with it- embarrassment. With credit cards, all you have to do is inform the company that your card has been used fraudulently and they will swing into action blocking any further use of the card. You are not liable for such fraudulent purchases. The key is to keep track of your card and the activities on it so that both you and the company are aware immediately if the card is stolen or misused.

5. Automatic insurance. Most of the credit cards come with some form of insurance as an additional benefit to the consumer. Ensure that you are aware of what insurance covers you and what the terms are. Besides the credit card theft, you could be insured against loss of luggage while travelling, car rental insurance, travel insurance and so on. Some credit cards also offer warranty on the major purchases you make.

6. Universal acceptance. Credit cards open doors. Sometimes, it is necessary to have a credit card for identity purposes –i.e. PayPal – or if you need it against any incidentals – in hotels – where debit cards are not always recognized or accepted. This is especially true when
you travel abroad where some merchants decline a debit card, but accept credit cards.
7. Build your credit score. Used wisely credit cards can be an extremely potent tool for building your credit score. This is why it is important not only to have 1-3 credit cards (it amounts to your total credit), but also that you use it wisely, i.e. ensure to pay your bills on time. This is the way to prove financial responsibility in order to help your credit rating rise.

8. Gives you freedom to make best use of any opportunity. Say you find this superb bargain on something you have wished to buy for ages. However, you do not have cash on you or in the bank. If you know that u will have the money by next month; however, by that time this bargain would not be available; here is where you credit card would come in handy.

Caveat: Never use your credit unless you can pay the bill in full when presented. If you do, you may be trapped into paying huge amounts of money as compound interest, which can drain your resources.

Trapped With A Bad Loan – 4 Steps To Freedom

There may come a time when you will find yourself considering cosigning a loan for a friend or relative who finds themselves in need of financial assistance. As you consider potentially extending your credit; there are things that you need to take into consideration. Remember, the financial obligations of that loan become part of your credit portfolio as such:

1. The debt that your friend/relative has available with you, as a consignee, will be calculated into your debt load. When the credit bureaus calculate your debt-to-income ratio, this debt may lower your chances of being extended credit for a major loan.

2. Any deviation from the repayment schedule will negatively affect your credit score. It is imperative that you ensure that payments are received by the due date. Ask yourself “can I cover the payments if I had to?”

3. There is a very real possibility that you might fall out with the relative/ friend due to the cosigned loan, unless you are very careful to balance your concern for timely payments with your concern for the friend/ relative.

What do you do when you have extended your credit and find that it is too much tension to bear and want out? There are steps to take to try to release your credit of the financial responsibility.

1. Refinance the loan. The first and best option to consider is refinancing the loan. This option is generally available for all types of loans, i.e. student loans, car loans, personal loans, and mortgages. While large loans are hard to pay within a short time span, refinancing allows for more time and lower monthly installments. Often, this also means that the borrower (your friend/ relative) would be able to obtain the loan using only their credit. This option is also available with credit cards. With credit cards, the balance transfers to a new card under the name of the person for whom you have cosigned.

2. Seek out financial advisement. Often the reason why people cannot avail a loan on their own is due to a poor credit score. Encourage your friend/ relative to seek credit repair help in order to bring up their credit score. In most cases, once the credit score rises, they can avail of the loan on their own.

3. Help the person organize financially. Engage in conversations to find out what the reason behind the person’s inability to get a loan on
their own merit. Sometimes, professional help is necessary to guide this person on to the path of financial stability. Consider extending a cash loan to the friend/ relative that could put the person back on track without putting your credit score at risk. Get involved and help.

4. Pay more to accelerate the repayment schedule. If you are financially able, help the person (and yourself) by repaying the loan sooner. You could do this by chipping in and matching the monthly installment your friend/ relative needs to pay. This way, you can repay the loan in half the time. This would ensure that your credit stays high. Arrange a less stringent repayment schedule for the payments made on their behalf. You will both benefit in the end.

Resources

The Credit Repair Organizations Act
The Fair Debt Collection Practices Act (FDCPA)
Fair Credit Reporting Act (FCRA)
Consumer Credit Protection Act
The Fair Credit Billing Act
The Equal Credit Opportunity Act (ECOA)

 

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