I know how tempting credit cards can be. Darren and I used to have a loving relationship with our cards until we realized just how much they were costing us.
We still use cards but only the basis that a.) they pay a ton of reward points and b.) we clear the balance in full each month. Now, the cards work for us, we don’t work for them.
I appreciate that not everyone is, currently, as fortunate but there are four questions you must ask before you decided to cave into temptation and take up another card:
Question 1: Do You Really Need It?
What does this card do for you apart from adding more debt to your life? Will it reduce your current debt or make it easier to pay back? (Watch out for “0% APR offers” – they often come with a 3-5% transfer fee which means you need to pay the balance back fast to make them work).
Is there a cash benefit that beats your current cards? 200,000 Air Miles is only of value if you want to fly somewhere.
Question 2: What Kind Of Card Is Best For You?
There are so many deals out there. If you’re going to sign up for a card – make sure it has benefits that are designed to fit with your lifestyle.
Cash back rewards for shopping in a certain store. Miles that reflect a travel-heavy lifestyle. That kind of thing. Don’t pick up a high-interest debt for a low-interest reward program.
Question 3: What Will It Cost You?
You need to think about:
- The annual fee. How much is it if there is one?
- The interest rate. Many low rate introductory offers get very high rate after the promo period expires. Pick something that brings long-term value.
- Foreign transaction costs. If you go overseas a lot this is a big deal. Many card companies charge a small fortune in fees for usage outside of the US.
- Penalty fees. Hopefully, these won’t trouble you but it’s better to know what you might have to pay if things don’t go as well as you hope in your financial life.
Question 4: What’s Your Credit Score Like?
The better your credit score, the better the deal you’re going to get on a new card. If you have a lousy credit score, lenders typically gouge you for all they can – as nobody really wants the risk you represent.
Find out your credit score for free using the link above and if it’s below 600, start working on your credit score before taking on any more credit. Ideally, wait until you score is over 700.
Credit Card Debt Is Bad Debt
I can’t mince words on this. In the long run credit card debt is expensive debt. Every time you pay interest on a credit card – you are working for the bank rather than yourself.
Earn more, spend less and get rid of credit card debt for good. It’s the only path to a life of financial freedom.