Ask yourself: does the credit card work for you or do you work for your credit card? Most people’s response to that question will depend on how they use their “plastic friend” as credit cards are often known. As many people with burned fingers will tell you, they didn’t realize that things had gotten so bad until very late, because most credit card offers try so much to sound like they are actually running a charity. Well, they aren’t.

And this is not a hate campaign against credit cards. They have their benefits – in America if you want to rent a car, you have got to have a (major) credit card. But, consider this scenario:

You get an offer in the mail that sounds good, perhaps it’s a new TV or fridge. But it costs $2,000. You have a credit card with a $5,000 limit, so you go out and purchase the item right away. Often, this is how your repayment schedule will work out. Most credit cards charge a minimum percentage of the total balance (typically 2 percent) per month. Assuming the interest rate is 18 percent and you choose to repay the minimum amount of $40, $30 of that will go towards interest and only $10 will come off the $2,000!

Does it sound scary? Well, it doesn’t have to be. The moral of the story is to use the credit card very, very carefully.

Credit Cards Dos and Don’ts

There is a great deal of truth in the saying that credit cards are not a substitute for not having money. Every time you use a credit card this should be the theme song playing in your head. Furthermore, you would do good to remember the following too:

Dos.

1] Always plan for the purchases that you need and those that you only want. You need the essentials, but you only want everything else. The ability to differentiate could help you plan sensibly.

2] If you are caught up in financial difficulties, it’s always a good idea to talk to the credit card issuer who might adjust your payments. If you simply default, that only helps to build up a bad credit history and you might find yourself being denied credit in the future.

3] Unless you are experiencing an emergency, staying within your credit limits will help you a lot. If you must spend over the limit, ensure you are within manageable levels, say within 30 percent.

4] If your letterbox is chock-full of information on credit cards with more favourable offers than you are currently enjoying, you may always approach your issuer for a better deal. They want to retain you as a customer, so they will listen.

Don’ts

1] Do not use your credit card to purchase household goods. It is too expensive in the long run.

2] Do not just pay the minimum amount. You will end up paying exorbitant amounts of interest. The quicker you are able to clear the debt the better.

3] Do not use the credit card to buy things you can’t afford.

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