Credit comes with pitfalls. We are told this regularly and for many people it seems to be all they ever hear about the process of paying with credit. However, if managed to your advantage, you can make credit cards work for you. Bear in mind that banks and lenders are quick to add charges to accounts when they feel that there is an opportunity to do so – and don’t give them the chance to do it. Do you believe that it costs them that much to administer to your late payment? Of course not – so make sure you are in the driving seat.
To do this, it is a matter of using credit in ways that the bank won’t recommend. The “monthly” payment on your credit card will usually be set at a small percentage of the balance, and the bank will be happy for you to only ever pay that, because you will pay off more than you ever borrow. Interest, plus any charges, will amount to as much money as you borrowed in the first place. However, you can pay more than the monthly payment, so here is how to make it work for you.
When you take out a credit card, use it as you would use an ATM or debit card. Pay for groceries with it when you get your wages at the end of the month, and then instantly pay the balance off in full. For a while, live off credit and use the money that goes into these costs to make payments to your card. Your credit rating will soar. Your bank will offer you better terms. You’ll be in the driving seat.
It is a very rare kind of person that does not have money problems at some point in your life. It is important to realize in the circumstances that missing a single payment on your credit card does not make you a bad person, a financially reckless individual or a debt risk. This is not because it is fine to miss a credit payment – ideally, it won’t happen to you – but because there is a way back from credit problems. You need to be concentrated on finding that way back and taking it – but as long as you keep a clear head, this is more than manageable.
Missing one credit card payment is unlikely to strip you of a positive credit rating in one fell swoop. What you need to keep in mind is that there are very good reasons to treat your first missed payment as a warning sign. If you fall into longer term problems with debt, it will be much harder to escape them. For this reason you should focus on that payment and tell yourself that it won’t happen again. Pay attention to making the payment when you can, and meeting the next one when it becomes due. By sticking to this promise to yourself you will make it far more likely that the one missed payment was an aberration. If you think that you will have problems making payments going forward, look for alternative solutions such as consolidation or debt management, rather than letting the problem grow.
Although there are obvious pitfalls to taking out a mortgage or a new car loan which are not a problem with unsecured credit, there is no doubt that unsecured borrowing can still be a very risky endeavor. Just because the lender cannot repossess your possessions to make good on the loan, this does not mean that you cannot be put in a very risky situation financially. The first thing that will happen when you miss a payment on a loan or credit card is that you will go into the company’s “collections” file and they will pursue you for payment.
As well as entering the collections department, you will find that your credit record will contain the information of your missed payment. There are certain kinds of borrowing that are available to people with perfect credit ratings, including loans that have extremely low interest rates. A black mark on your credit rating will be enough to disbar you from ever qualifying for such lending, and will mean that any credit you do get will be very much on the lender’s terms.
Borrowing money can be the solution to a problem in a number of situations, but it is important to realize that without the continued means to pay the money back you will be placed in a very troublesome situation. Sometimes the best way to deal with the pitfalls of unsecured lending is just not to borrow at all. It may make for a difficult situation, but it will be one without unpleasant letters and phone calls.