Credit cards are often used as an extension of credit, so the idea of having more debt is attractive to many.
But how much should you have and how much can you afford?
That depends on the type of debt you’re dealing with.
With the rise of the internet and smartphones, it’s becoming increasingly easier for consumers to spend their money online, and that has made it more difficult for banks to maintain the level of scrutiny that they used to put on their own customers.
The Financial Times’ Rebecca Kravets and James Taylor discuss what you need do if you want to save on your credit.
Choose a credit card.
It’s a good idea to pick a credit line that has a minimum balance requirement and one that offers a high interest rate, because they can reduce the interest you pay on a loan and reduce the amount you have to repay on a credit balance.
For example, if your annual interest rate is 4.75%, you’ll have to pay out $1,500 on a $100,000 loan.
If you have a minimum monthly payment of $100 and a maximum monthly payment above $1 million, you’ll pay out an average of $4,500 a year on your loan.
You’ll also pay for any late fees and other fees that you might incur.
The best credit card offers this benefit for low- to moderate-income borrowers.
They may also offer you an introductory APR, which is the monthly rate that applies to your first six months of account use.
The average introductory APR for a credit account is 2.75%.
The best deal is a 3.5% introductory rate.
The minimum payment on a 3% introductory credit card is $25.
The rate is not affected by any of your other payments, so if you’ve already used the card, you should have no trouble paying it off.
The good news is that if you get a bad credit score, you can take advantage of these lower APR rates, too.
Choose an auto loan.
The interest rate on a car loan is typically the lowest, at 3.75% a month.
That’s because if you have the right credit, the car company will make a payment on the interest that’s accrued on the loan.
For instance, if you had a $5,000 credit line for $50,000, the interest on the $5 million car loan would be 3.25% for the first $10,000 of the loan, and 4.25%, for the next $10 million of the car loan.
In other words, if the interest rate were 3.50% on the car, the monthly payment on that loan would end up being $3,500.
If your credit score is low, the lender won’t make a good offer on your car loan, but they can offer you lower interest rates if you use your credit responsibly.
Use a car-equipment discount.
If the interest rates on car loans and auto equipment are low, it can be worth taking advantage of the lower rates offered by auto companies and discount stores.
If they offer a 2% discount on a certain car, that can give you a lower cost per mile and a lower average cost per hour.
That means that if the car costs $30, the 2% off could save you $15.
If that car has a 2.5-year warranty, it will save you an average $3.50 per mile.
Avoid overdraft fees.
If credit cards can help you save money on your loans, it might be worth considering paying off your card early if you can, but you may have to use a few other methods if you’re not making a regular payment.
The first one is to pay off the card with your own money.
If there’s no interest on your card, it should not take long for the balance to be forgiven.
However, if there is a balance on your account, the company may require you to pay a fee.
For the most part, you shouldn’t have to make a monthly payment because you’ll still have to meet certain credit card terms and restrictions.
Compare the rates.
You might think that paying off a card early will save money and that you’ll be able to pay it off with less interest.
That may be true for some people, but it won’t necessarily be true if you don’t have enough credit available to pay the balance off.
If all you have is a credit score and you’re spending $500 a month on car and credit cards, you might want to consider getting a loan from a lender with a good credit score.
It might be cheaper for you to take a car off the road, but if you need a new car, you may want to take out a loan instead.
If these tips sound familiar, that’s because they’ve been applied to many other types of debt.
What do you think?
Share your thoughts in the comments below.