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  What You Should Know Before:
Using a Debt Consolidation Service
Getting a Home Equity Loan
Using a Credit Card
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Credit Cards - What you should know before using them

Credit cards can be a useful tool for budgeting if you avoid some common pitfalls associated with their use. Credit card companies make their profit from consumers who do not avoid these pitfalls and end up paying much more for their purchases than they would otherwise.

You should make two unchangeable rules for yourself before using credit cards. The first is the most sacred: Always pay the full balance each month on your credit card statement. If you do not, you will pay interest and finance charges which will drastically increase the cost of the goods and services which you purchased. The second rule is to charge as many of your normal expenses as you possibly can on your card. This should include groceries, automobile expenses, clothing, and household items.

If you can follow these two rules, here are the financial advantages:

Deferred payment on purchases
When you pay for goods and services with a credit card, you can keep your money until the credit card bill comes at the end of the month. If you place that money in an interest-bearing bank account, then you are getting paid to put off paying. This is the equivalent of getting a loan for your purchases which pays you interest!

Budgeting convenience
Your credit card bill will show a list of all purchases made that month. You can combine this list with a list of your cash purchases to provide a comprehensive picture of where your money went. The more normal purchases you make with your credit card, the less record-keeping you will have to do. You will also save on checks, since you only need to write one each month.

Credit card rewards
Most credit card companies offer a "reward" system as an inducement for using their credit cards. The best type of reward is cash. Most companies that offer cash reward base the reward amount on the amount you charge. Some put an annual cap on the amount you can earn back, some do not. Other credit card companies offer different types of rewards, including free airline miles, discounts for the purchase or lease of certain vehicles, free gasoline, electronics, clothing, dining, groceries, toys, and more.

Consumer protection
Credit cards have an advantage over other means of payment. If you purchase an item that didnít work or was not what the merchant advertised, you may ask the credit cad company to remove the charge from your bill. You must meet certain conditions which will be spelled out in your contract, but generally you are in a better negotiating position with a dishonest merchant if you paid by credit card instead of cash.

To summarize, if you follow the rules of paying your entire bill each month and charging as many normal expenses as possible, then credit cards will work to your financial advantage.


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