The Credit Card Safety Guide

It's just a tiny bit of plastic, but it can still make life unbearable. Here's a quick session on how to use your credit card in a safe and Foolish fashion.

How on Earth does anyone manage to get nearly 60 credit cards? The rate tarts amongst you would love to know, so that you can get more cards and better deals. If you find out, you hopefully won't decide to max out all 57 cards to reach £412,000-worth of debt, as one man did according to the Consumer Credit Counselling Service.

Two things happen which cause a downward spiral into debt. Firstly, we aren't educated properly about the value of saving, so here goes.

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If every year you save £200 a month to buy items you want the next year, you'll come out of it with £2,400-worth of goods, no debt and almost £100 in interest after tax, assuming you choose a savings account offering 10% interest. You go on to earn even more interest on that interest, so after ten years you'll have earned around £1,300.

Conversely, if every year you spend £2,400 on credit cards and then pay it off, you could easily pay £160 in interest each year, assuming you pay off the debt and interest evenly over twelve months, and assuming an average credit card interest rate of 15.5%. Your interest bill will be even more if you don't pay off the whole balance plus interest in the same year.

This means that over ten years the interest paid will be £1,600, rather than earning £1,300 in interest from a sensible saving scheme. Net difference: you're nearly £3,000 worse off.

Even if you have a six-month 0% credit card deal, that'd still be about £50 paid in interest each year. But how many of you will switch credit cards every twelve months? Not very many!

Safer credit cards

.Which leads me to the second thing we do wrong: we don't use our cards properly. Plastic can be very bad news. A true Fool will only use credit cards in order to benefit from greater protection against fraud and merchants going bankrupt, and the card balance will be paid off immediately. But for those who use credit cards as loans, you must use the right credit cards for your needs.

Think of it this way, you probably spend a long time online or in the shops comparing prices, but all this hard work is nullified if you pay whacking great amounts of interest. You save, say, £100 on the initial purchase, but pay hundreds more in the long run.

So consider carefully what you're using your cards for. They can serve a purpose, but only if they're used wisely.

> Compare credit cards through The Fool, where you can easily see which cards are suitable for your needs.
> Learn more about which card to get.

If you'restressed and anxious about debt, you've come to the right place. See ourGet Out Of Debt Centrefor free tips on how to sort out your affairs. Also, get support from thousands like you in our excellentDealing With Debtdiscussion board. You won't regret it!