Using a credit card is practical and easy. Numerous banks offer this service and some financial institutions do not even charge an annual fee, making card purchase more seductive. According to the Brazilian Association of Credit Card and Services Companies (Abecs), transactions using credit cards totaled $ 648 billion in 2015, and the trend is for growth. This facility disguises the real danger: interest on the credit card.
At the same time that the use of credit has grown, the number of people in debt due to the use of this service has also increased. People who contract this type of expense have difficulty paying it, since the interest on the credit card is high – it can reach up to 748% per year -, forming a snowball. To avoid this situation, it is necessary to be careful. Check below how to prevent!
1. Don’t spend more than you earn
The first caution is the most repeated advice for every economist: never spend more than you earn – even less if possible, to have a financial reserve for emergencies. If you take this precaution, you will hardly fail to pay the full credit card bill and will not need to pay interest.
2. Control spending and avoid paying credit card interest
When using a credit card for most purchases, it is common to lose control over how much you are spending. The result of this is that the end of the month can hold unpleasant surprises. Some people write down or make spreadsheets with 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 the money is used for.
3. Avoid paying the minimum on your card bill
When you choose to pay the minimum amount of the card bill, the rest of the debt will be charged next month with interest. Generally, the minimum amount is calculated to be 20% of the total invoice, that is, you will be paying 80% of your invoice. In the following month, this amount will be charged plus interest on the credit card, late payment penalty and financial transaction tax (IOF), so there is no advantage in this transaction.
4. Avoid installments with interest
Credit card purchases can be made in cash, when the amount will be charged in a single installment, or in installments. When you choose the second option, the installment can be made without interest, when done by the store itself, or with interest, when done by the credit card operator.
When opting for installments with interest, it is important to question the rate charged, the value of each installment and the total purchase amount. Operators are required to provide this information. That way, you program yourself to make payments and not incur debt.
Did you understand how damaging credit card interest can be? Following our tips, you will follow the year without debt, as financial education is an important part of your life.