Use the 10 percent rule. Your debt load (except for your home mortgage) should not exceed 10 percent of your yearly after-tax income, страница 2

Credit warning signals:

You take out new loans (consolidation loans) to pay off old ones.

You use credit to pay for everyday family living expenses.

 You miss monthly credit payments in order to have enough money for basic family living expenses.

You skimp on basic family living expenses, such as food, to pay creditors.

You have lost track of your full credit obligations.

Your outstanding balances on charge accounts and revolving credit accounts climb higher each month.

You pay only the minimum amount due each month on your charge accounts and revolving credit accounts.

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You receive reminders about overdue payments.

What is a credit card?

A credit card is a plastic card identifying you as a participant in the charge account plan of a lender such as a department store, oil company, bank, or credit union.

Department store and oil/gasoline cards: Use is limited to a regional store or national chain of stores.

Bank Cards (Visa, MasterCard, Discover): These are offered through banks, savings and loans, credit unions, and large consumer product companies such as AT&T and General Motors. They can be used for a wide variety of purchases, as well as cash advances.

Know the APR

The annual percentage rate, or APR, is the relative cost of credit on a yearly basis. Comparing APR of different lenders is the easiest way to compare credit. The lower the APR, the better. This is especially true for credit cards, if you do not pay your monthly bills in full.

Know the grace period

When used in reference to credit cards, a grace period is the number of days you have before a credit card company charges interest on your new purchases. A typical grace period is 20 to 25 days.

Grace periods are often misunderstood by credit card users. If you do not pay your balance in full each month, the moment you charge additional items on your credit card, some credit card companies will calculate interest on that purchase along with the unpaid balance from the previous month. To determine how an issuer treats a grace period, read the fine print on the back of your monthly statement.

How does YOUR credit card issuer calculate your interest charges?

Interest is charged on the outstanding balance on your credit card. However, credit card companies use different ways of figuring out what

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your outstanding balance is. This means that the amount of interest you pay could be higher or lower for the same purchases or charges, depending on what method they use. If you do not pay off your balance in full each month during the grace period, pay attention to how your credit card company calculates the outstanding balance on which interest is charged.

Average daily balance method, excluding new purchases

The sum of the outstanding balances for every day in the billing cycle is divided by the number of days in the billing cycle. Interest is charged on this average daily balance. New purchases, payments and credits are not counted.

Many consider this the most preferred method since it gives you a grace period on each new purchase—even if you are carrying a balance from the previous billing cycle.

Average daily balance method, including new purchases

The sum of the outstanding balances for every day in the billing cycle, including new purchases, payments and credits, is divided by the number of days in the billing cycle.

Two-cycle billing method

The two-cycle method calculates the average daily balance from two billing cycles instead of one, and usually results in higher interest charges. This method effectively does away with the grace period for customers who carry a balance. It can be hard to determine whether you are being billed this way. Your statement won’t say, “two-cycle billing period.” Look for language that refers to interest charged on purchases made during a previous billing cycle.

Adjusted balance method

This balance is figured by deducting payments and credits made during the billing cycle from the outstanding balance at the beginning of the billing cycle.

Previous balance method

This is based on the outstanding balance at the beginning of the billing cycle. Credit card companies make money when you don’t pay your bills in full each month.