By LOUIS DENICOLA
Credit cards can be scary, exciting, dangerous and useful. Some people use credit cards to earn rewards while others worry about overspending or racking up credit card debt. But the more you know, the less scary, and more rewarding, credit cards can be. Below are five common fears people have about credit cards and how you can conquer them.
Credit Cards Lead to Massive Debt
Spending until you reach your credit limit is tempting, even when you don't have the money to pay the bill in full. If the temptation is too strong, you can make a habit of sending in credit card payments before the due date. This makes you accountable for the money you spend at multiple points throughout the month.
Treating your credit card like a debit card and only spending what's available in your account may help keep debt from piling up. You can connect a money management app to your bank and credit card accounts that will automatically update account balances. This lets you make decisions throughout the month based on how much money you actually have and owe.
Applying for a New Credit Card Hurts My Credit Score
When you apply for a new credit card, the issuer may take a close look at your credit history in what's called a hard inquiry. As a result, your credit score will likely drop by a few points. A hard inquiry can remain on your credit report for two years, but your score may return to where it was, or climb even higher, before then. It may not be wise to try to get a new card right before applying for a loan, but the act of applying for a credit card generally doesn't hurt credit scores in the long run.
The Interest Is Too High
Credit card debt is expensive. For credit cards with penalty APRSs, interest rates can quickly climb above 25 percent if the cardholder misses even one payment. If you make on-time payments in full, you won't need to pay interest, although that's not always practical. If you are making partial payments and carrying a balance, consider calling the credit card's issuer to see if they can lower your interest rate. Another option is to transfer the balance to a new card that has a lower interest rate. Some cards are made for this and have no transfer fee and 0 percent interest during an introductory period.
There Are Lots of Hidden Fees
As with many other financial products, credit cards may come with associated fees. The first fee to be aware of is the annual fee. Not all cards have one and many of those that do waive it during the first year. Mark your calendar for a year from when you activate a card with an annual fee and call the issuer before the fee is due. They may be willing to waive the fee for another year, or you may be able to change to a different, no-fee version of the card.
Other common fees include the foreign transaction fee (a percentage of purchases made in foreign currencies), late payment fee and a balance transfer fee. These fees can often be avoided if you get a card that doesn't have these fees or waives them for new cardholders. And if you're rarely late with a payment, your credit card company may waive a late payment fee.
You can also avoid late payment fees by setting up automatic payments from a bank account, but make sure you have sufficient funds in your account.
Someone Will Steal My Credit Card
Online and on the street, credit cards are prime targets for thieves. However, credit cards can be safer than cash or debit. Cash has its obvious drawbacks: it can't be used for online purchases, and there's little recourse if it's lost or stolen. Debit cards have the disadvantage of being directly linked to your bank account. Federal law dictates that people are liable for no more than $50 if they report a debit card lost or stolen within two business days. However, getting the bank to return the money that was spent by the thief can sometimes be a hassle. Waiting more than two business days to report the loss or theft can result in increased, even unlimited, liability.
On the other hand, major credit card issuers such as Visa, MasterCard and American Express offer zero-liability protection, subject to certain conditions. Cardholders generally aren't responsible for any unauthorized purchases on their card, and the credit card company will take over and resolve any disputes on behalf of the cardholder. Because the money isn't taken directly from your bank account, you typically don't have to struggle or wait to be reimbursed for unauthorized transactions.
Credit cards can be powerful financial tools, but they need to be handled with proper care and caution. You can track your spending and treat a credit card as you would a debit card to limit the chance of accruing debt. Credit cards also generally offer consumers better protection than cash or debit cards, and many reward cardholders with travel rewards or cash back.
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