Using credit card is practical and easy. Numerous banks offer this service and some financial institutions not even charge annual fees, making the purchase of cards more seductive. According to the Brazilian Association of Credit Card Companies and Services (Abecs), transactions using credit cards totaled $ 648 billion in 2015, and the growth trend. This whole facility masks the real danger: the interest on the credit card.
At the same time that credit utilization increased, the number of people in debt due to the use of this service also increased. People who incur this kind of expense have a hard time repaying it because the interest on the credit card is high – up to 748% per year – forming a snowball. . To avoid this situation, some care needs to be taken. Check below how to prevent!
1. Don’t spend more than you earn
The first caution is the most repeated advice by every economist: never spend more than you earn if you can even spend less to have a financial reserve for emergencies. If you take this precaution, you will hardly miss paying the full credit card bill and you will not have to pay interest.
2. Control spending and avoid paying credit card interest
When using credit card for most purchases, it is common to lose control over how much you are spending. The result is that the end of the month can hold unpleasant surprises. Some people take notes or make spreadsheets of their spending, setting the maximum budget that can be used. There are some financial applications that also monitor your transactions, indicating how much is being spent and what money is spent on.
3. Avoid paying the minimum of your card bill
When you choose to pay the minimum amount of the card bill, the remaining debt will be charged the next month with interest. Generally, the minimum amount is calculated to be 20% of your total invoice, meaning you are no longer paying 80% of your invoice. In the following month, this amount will be charged plus credit card interest, late payment and IOF tax, so there is no advantage to that transaction. Yeah
4. Avoid installment with interest
Credit card purchases can be made in cash when the amount will be charged in one installment or in installments. When you opt for the second option, installment payments can be made without interest when made by the store itself, or with interest when made by the credit card company.
When opting for installment with interest, it is important to question the rate charged, the amount of each installment and the total amount of the purchase. Operators are required to provide this information. This way you program yourself to make payments and not incur debt.
Understand how harmful credit card interest can be? By following our tips, you will follow the year without a doubt, as financial education is an important part of your life.