Rewards credit cards: Are they for you?
Whether it's cash back, airline miles or savings for college, reward credit cards have their appeal. After all, who doesn't want to get paid to shop? It's like free money. Unfortunately, reward cards are not for everybody:
Who should avoid reward cards?
If you tend to carry a balance from month to month, reward cards are not all they're cracked up to be. That's because reward cards tend to have higher rates than regular credit cards. The money you pay out in interest will essentially wipe out any of the rewards you earn.
Who should apply for reward cards?
If you pay off your balance each month, reward cards are worth considering.
What’s the difference between a credit card and debit card?
Debit cards and credit cards are not created equal. With a debit card, the money is automatically taken out of your account when you purchase something. In the case of a credit card, you pay at the end of the month. However, the biggest difference is in the legal protection that you have. Unlike with a credit card, you don't have the right to dispute a claim with a debit card. If, though, your debit card is stolen and items are charged to it, most companies will match the $50 credit-card loss limit. However, you may have to wait a while — since the money has already vacated your account, the bank may not be so quick to replace it.
A very expensive student loan?
Most college students have at least one credit card — and the popularity of multiple cards is on the rise. The good news is that the college card-users are fairly responsible with their plastic, but there are still horror stories of undergrads emerging from school with credit-card debt in the high five figures. How can you keep it from happening to your kids? Talk to them about how credit cards work. Chances are, the day they get to campus (if not shortly thereafter), they'll be bombarded by marketers trying to sign them up for a card. Here are a few items to make sure your child understands about credit cards.
* Interest rates: Many student cards now have rates around 15 to 20 percent, which is higher than standard cards. There are bargains out there, but they'll need to hunt around.
* Late fees and penalties: Paying your bill late (even just one time) can result in a much higher permanent interest rate, as well as a $25 to $35 fee.
* Cash advances: Unlike with purchases, the interest on cash advances generally is charged immediately, when the withdrawal is made. In addition, the interest rate may be even higher than that charged on regular purchases.
Consolidating credit-card debt?
One way to lower your credit-card rates is to consolidate your credit card debt into one big home equity loan or home equity line of credit. This can be a very cost-effective way to go. Not only are the rates on home equity products much lower than credit card rates, but they're tax deductible as long as your total mortgage debt doesn't exceed $1.1 million. So what's the difference?
* Home equity loan: A fixed-rate sum you borrow all at once.
* Home equity line of credit: A variable-rate loan that usually floats with the prime rate and you draw upon as needed.
One warning: The home equity approach can also be dangerous. Why? You're putting your home on the line. Default and you could lose it. The other big problem with consolidation is that many people clear the debt off their credit cards only to charge them right back up again. Don’t consolidate in this way if you have even the smallest doubt that a self-imposed moratorium on plastic will work for you.
0 comments:
Post a Comment