Tesi Johnson, Gleaner Writer
RBTT Bank, National Commercial Bank, Bank of Nova Scotia, FirstCaribbean International and First Global Bank all offer credit-card services, and oftentimes, you don't even have to be a customer of the bank to get a credit card. Even some credit unions, such as COK Co-operative Credit Union, offer credit cards to select customers.
A credit card should be a convenient means of spending money that you already have, in lieu of carrying around cash. However, some people mistake it for free money, and that, along with their misinterpretation of phrases such as 'high credit limit' and 'minimum payment' enhances, the temptation to live above their means.
With all this convenient plastic, it becomes easy to just swipe and go. And especially since more local banks are offering credit-card services, it has become easier for one to rack up more than one's fair share of debt.
Still, credit cards can be a useful financial tool. As mentioned before, they are a mighty convenient way to spend. Further, a good credit history establishes you as a reliable debtor, making financial entities, more willing to give loans when requested.
But, in order to keep credit- card debt at bay, there are some things you should be aware of.
Always pay in full
Credit card companies make a whole lot of their money when you don't pay your bills in full and on time every month.
That is when you start accruing interest and they start seeing dollar signs.
Always try to pay your bill in full when it becomes due, rather than making just the minimum payment. Credit-card companies don't allow you to pay back your debt in small amounts out of the kindness of their hearts. Au contraire. Making just the minimum payment means you'll be paying more interest charges over a longer period, which spells more money for the company. Which brings us to the next point.
Compounding is not your friend
Compounding (paying interest on interest accrued), guarantees that you will be filling the credit-card company's cash coffers with your hard-earned money for a long time, if your payments are not properly managed.
When interest is allowed to accrue on credit-card debt, that interest is liable to incur additional interest, and that too will incur more interest, and so on. Compounding is a vicious cycle. And since credit cards tend to have a significantly higher interest rate than traditional loans, the compounding makes your debt seem to increase exponentially!
Cash advances are evil!
Remember the concept of compounding? Well, cash advances attract the most interest, because their interest charges are usually compounded daily. Yes, DAILY! Until the amount of the advance is repaid, as well as the interest you've already racked up, interest will be calculated using the owed balance and the previous day's interest, and the same for the following day, and so on. Avoid taking cash advances as much as possible.
Keep Records
Keep good records of your transactions by retaining all receipts, and reconcile them with your monthly statement. If you find any discrepancies, contact your credit-card company.
Read the fine print
Make sure you fully understand all the conditions delineated on your credit-card agreement. Also, be aware of additional charges to your account, such as membership fees and such. All in all, good credit-card management is an important element of financial health.
If you can get into good credit-card habits early on and stick with them, you will avoid having to dig yourself out of credit-card debt.
But if you are already in debt, well, that's a whole other story.
