How To Avoid High Credit Card Rates

John couldn't figure it out, "How was he going to purchase the house of his dreams yet he couldn't balance his finances?" He felt as though he was spiraling out of control. The previous months were spent trying to purchase anything and everything he could get his hands on. Now it's been six months since he first received his credit card and now he's maxed out. "How could this be? I pay the minimum balance each month and I got the card when it was a zero percent!" John decided that the only way to feel better was to go on another shopping spree again. "At least I'm getting what I want," he thought as he prepared to go visit the mall...

This scenario happens to so many people that it's shocking. It's as though some people figure that paying the monthly balance will somehow lower the balance. Then there are others who get sucked into zero rate credit cards. These two factors are becoming a normal part of today's finances.

Machine Gun vs. Revolvers

One of the key problems when discussing finances and credit card is the argument whether to pay the whole balance off or break it up into payments. For years, cardholders of American Express have been paying off the entire balance after the end of the month. However, not all credit card companies incorporate the same principles. The two categories of customers who carry credit cards are:

· Machine Gun Holders - These credit card customers tend to pay off their balances at the end of each month. This is to keep them from incurring any interest charges. This is the way a credit card should be used. This allows you to only spend what you have instead of giving away what you don't have yet. This means that if you're getting $2000 a month from your paycheck, then your credit card spending habits should be low enough to where it falls at least 30 percent of this figure. Then at the end of the month, pay off whatever balance you've accumulated to avoid interest charges. Most credit cards have grace periods in which there's no interest rate added to the monthly balance if the balance is paid out before it expires.

· Revolver Holders - This type of customer who carries credit cards is someone who carries the amount posted on their statements over to the next month. This results in paying interest rates for no reason. For example, if a person purchases a computer for $1000 by using a credit card yet only pay the minimum balance. What happens is, the balance will trickle upwards because you're only paying for a percentage of the balance. The rest of the money is used to pay the finance charges from you carrying over the balance. This results in lost money because it's extra funds that don't have to be. Credit card issuers gain more from this than anything else. This is why credit card companies love when customers only pay the minimum.

The Zero Percent Factor

There are many credit cards that boast zero percent however, look at the fine print in the disclosure. Many times, these are only teaser rates. This means it's only offered for a limited time. After that, you can best believe that the rate will increase. This sort of card can be beneficial for the machine guns but can be a nightmare to the revolvers. Be careful of these offers. It's always best to read EVERYTHING first before committing to the offer.