Credit cards are products – and just as you would shop for a car or stereo, you want to be sure that you get the best deal on the card that most suits your needs. Therefore, long before you complete an application, know what you are looking for, understand what’s available, and then analyze and compare the terms.

Know What You Are Looking For
Credit cards come in all sorts of varieties, so start your search by knowing what you want the card to do for you.

Secured credit card. If you are just starting out in the world of credit – or need to repair some past credit damage – then a secured credit card may be right for you. With it, your cash deposit secures the line of credit. Because of this security, the lender assumes minimal risk, so getting one is usually easy. By using a secured card responsibly, you will build credit and be able to qualify for an unsecured card soon.

Unsecured credit card. Have a positive credit history and want to be able to charge just about anywhere? Shop around for an unsecured general-purpose credit card. These are revolving debt instruments, meaning you can charge up to a set credit limit, make a minimum payment, and have the balance roll over to the next month. If you have already proven yourself to be a good credit risk (by having a long history of borrowing and repaying money on time) the interest rate can be in the single digits.

Retail and gas cards. If you only want to charge goods at a particular store or service station, a retail or gas card may be for you. They are unsecured, and the interest rates are often higher than those for general-purpose cards. A benefit of having a retail or gas card is that you may have the opportunity to rack up points when you use them, and then cash them in for special rewards.

Charge card. Some people work best within limits – by knowing they have to pay the entire balance in full by the time the bill comes, they can keep spending in check. If this is the case for you, a charge card may be appropriate. Unlike a credit card, you have to pay the entire balance when the bill comes in. Be aware though, that annual fees for charge cards can be expensive, and if you don’t pay what you owe in full by the due date, the interest rate and fees will be high.

Know What’s Available
Many people take the passive approach to shopping for a credit card: they wait for offers to come to them in the mail. While it is possible to find a good deal this way, it is far more efficient to take an active approach. After all, the pre-approved offers you find in your mailbox are only the tip of the iceberg.

One of the best places to begin your search for the perfect plastic is the financial institution where you already have your other accounts, such as checking, savings, a CD, or a money market. Because you have an established history with them, your financial institution very well may be willing to issue you a secured or unsecured credit card with the most favorable rates and terms.

Of course if you want a retail or gas card from a particular store or service station, you would start there. Only pursue plastic from places you really will frequent, though. Many stores provide an instant discount on that day’s purchases if you apply for their credit card, and you can end up with more credit than you actually need if you accept every offer.

Another option is to get on the Internet and search for all of the different financial institutions that are issuing credit cards. Many times you can even apply online as well. Be careful to only use secure sites. Look for the lock icon on the browser's status bar and make sure the URL reads "https" instead of "http." Also, never fill out credit forms or provide personal and financial data in email messages.

Know The Terms
It is vitally important that you, as the credit card shopper, know exactly what the terms of the credit offer are. Very few people read the fine print carefully, but they should. This is where you will find key information about the card. Before you apply, know:

The annual percentage rate (APR). The APR is the interest rate that the issuer will charge you for maintaining a balance. The lower the APR, the less the debt will cost.

The universal default clause. Though your new card may offer an excellent APR, be aware that a late payment on any other credit card you may have can trigger it to go up dramatically.

If it has a fixed or variable interest. Some credit cards come with fixed interest (where the rate remains constant), and others with variable interest (where the rate changes according to an index, such as the Prime lending rate). The difference is usually minimal, but if you do get a variable rate card, look for the cap – the amount the interest rate can’t go over.

If there is an annual fee. If your credit is good, you should be able to get a credit card with no or a low annual fee.

Late and over-the-limit fees. Though it is best to pay on time and never exceed your credit limit, it is still a good idea to know what could be charged.

The cash advance fee. Many credit issuers charge between two and three percent of the cash advance (and interest accumulates immediately).

If there is an application fee. As with annual fees, if you have a good credit history there is usually no reason to accept a card that charges you just to apply.

When and how much the interest can go up. Is the low interest rate for a limited time? If so, know when it will change, and what the new interest rate will be.

Grace period. The grace period is the amount of time you have to pay before finance fees are applied to the balance. Therefore, it is in your best interest to seek out a card with a long grace period.

Choose your credit or charge cards carefully and use them wisely – as the short-term payment tools they are. If you borrow only what you can afford to repay and never miss a payment, you can come out ahead and achieve your financial goals affordably.

1. Track spending to know where your money goes. Reduce or eliminate any unnecessary expenses.

2. Expect and prepare for emergencies. Aim for three to six months’ worth of expenses set aside in a liquid account.

3. Pay yourself first. Set up an automatic savings plan with your financial institution.

4. Make sure you have the right insurance coverage. A major lawsuit, unexpected illness, or accident can be financially devastating if you lack proper insurance.

5. Communicate about family finances regularly with your spouse or partner, and any of your children you feel are old enough to be involved.

6. Do not try to "keep up with the Joneses." It’s a no-win game.

7. Take advantage of tax-deferred investments. If your employer offers a 401(k) or 403(b) plan, use it.

8. Pay for unreimbursed medical expenses and dependant care with pretax dollars using a flexible savings account. Check with your employer for availability.

9. Commit to spending within your means. A line of credit should never be treated as an emergency fund or extra income.

10. Seek help from a financial professional. Great advice is out there; don’t be afraid to pursue it. 


Help! I Can't Pay My Bills:
Surviving a Financial Crisis

by Sally Herigstad, C.P.A.
(St. Martin's Griffin)

If you are in debt, you need a strategy to get out – as quickly, painlessly, and inexpensively as possible. Help! I Can't Pay My Bills: Surviving a Financial Crisis is the guidebook for you. Author and C.P.A. Sally Herigstad takes you thorough all of the steps necessary to get back on the right financial track.

Herigstad begins the book with an overview of how and why so many people wind up over their heads. This information can be a great relief to those who think they are alone in their financial troubles. She then covers how everyone can create a personal plan for dealing with all types of debts, including how to creatively, yet practically, free up cash and make more money.

Certainly one of the scariest aspects of debt problems is talking with creditors. Herigstad provides a terrific outline for how to communicate with them effectively and with the least amount of anxiety. She explains exactly what to write in letters and say on the telephone.

Help! I Can't Pay My Bills spells out all of the available options for debt repayment there are, and the benefits and drawbacks of each approach. Some of the material that she covers is plain common sense, such as the importance of budgeting and not waiting too long before contacting creditors, but much of is worth repeating. Herigstad believes that there is a solution for every problem. Her tone is positive and her advice is straightforward – just what someone in debt needs to move forward and take control of their finances.

Copyright © 2007 CCCS
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