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Are you going to apply for your first credit card? Discover some of the precautions to be taken

Between January and February 2022, consumer credit soared by about 63%, including personal, car, credit cards and overdraft loans. If you are thinking of applying for your first credit card, get to know some of the precautions you should have and some situations to avoid.

Research the advantages of the various credit cards on the market

Depending on the credit card, you will be able to enjoy several advantages. For example, certain cards give you access to a network of partners, with discounts or exclusive offers. Others offer you insurance with various coverages, namely theft and loss of your credit card, travel assistance, home technical assistance, health insurance, among others.

In addition to these advantages, some credit cards also allow you to receive a percentage of the money spent on purchases. (cashback)earn miles for every euro spent and, with that, exchange them for travel, and have access to a ceiling to raise money (cash advance), even if you do not have this amount available in your current account. However, in the latter case, you have to bear some charges to carry out this operation.

Also read: Do you have a credit card? Find out how it works and what precautions to take

Analyze different interest rates and other charges

With regard to interest rates, there is a wide variety between credit cards available on the market. Currently, the maximum interest rate on credit cards is 15.7%. This means that if you split payments on a €3000 loan into 24 installments with the maximum interest rate, you have to pay around €600 in interest, not counting any other charges.

Therefore, in addition to interest rates, which do not fail to sare important, it should also pay attention to other charges. Start-up commissions, stamp duty, late payment penalties are some of the burdens you have to bear. Although they do not carry the same weight as interest rates, over time these “small” charges can reach considerable amounts.

For this reason, if you have doubts about how much you will pay per month for your credit, in the consumer credit simulator, made available by Banco de Portugal, you can specify the specific values ​​​​of your situation. Credit amount, duration, nominal annual interest rate, initial fees, among other fields. In addition, you are provided with a payment plan, with information on your final installment, the principal repaid in each installment and the amount of interest.

Also read: 10 tips to settle credit card debt “fast”

Spend only what you can afford

One of the main precautions you should take with a credit card is amount you have available to “spend”. Often the ceiling this card even exceeds the amount you have on your current account. Unlike debit cards, where you can only buy what your current account amount allows,Credit cards let you go beyond your means.

Using these types of cards creates a feeling that it is possible to “have it all”, but the truth is that you will pay for your purchases later. In addition, in the same way as loans, there are advantages, such as the flexibility of payments, but also consequences if you fail.

Also read: Do you know what information is included in a credit card?

Avoid splitting credit card payments

One of the expenses to avoid is precisely the interest generated. Regardless of the APR on your card, you do not need to pay any interest as long as you do not split payments. If you always pay your expenses 100% every month, you don’t have to pay absolutely anything for using your credit card. Only the amount corresponding to your purchases will be debited from your current account.

Nonetheless, if you don’t pay your purchases 100%that is, if you split payments and “carry over” part of the outstanding amount to the next month, will pay interest on the remaining amount owed. This means that the amount used in new purchases also accumulates to what is missing, unless you pay your card charges in full.

Generally, every month you should receive in your homebanking or email your credit card statement. In this document you can check the amount used during the last month, the amount that you have to pay from previous months, plus the corresponding interest. Depending on the number of installments, the interest can be more or less high. The longer it takes to settle your purchases, the more interest you pay. Therefore, if you use your credit card, choose the 100% payment method whenever possible.

Also read: Credit card: friend or foe of savings?

Portable Credit Card

Avoid only making minimum payments

Generally, on each credit card statement, you are provided with the minimum payment you can make by a certain date. This means that, in order not to default, you need to at least pay that amount. However, these minimum payments, while tempting, as you only need to pay a small amount to avoid defaulting, can harm you financially.

Minimum payments only cover a tiny part of the amount owed, plus interest and fees from the previous month. Consequently, you will only be handing your money to the bank. In these minimum payments, the part you are interested in repaying is very small.

Even so, it should be noted that, if for some reason you are unable to make more than the minimum payment, must at least cover that amount. Otherwise, you have to pay interest and fees for the default. If you find yourself in such a situation, you should avoid making more purchases with your credit card as much as possible.

Also read: 6 reasons to hand over your credit card

Don’t miss credit card payments

Another care you should take with this type of cards is don’t miss your payments. Not only will you have to pay more interest for delays, but you can be harmed in future credits. ANDThese penalties for non-payment vary by credit card. However, regardless of the penalty, these values ​​are always high.

Furthermore, know that if you need to consolidate your credits, you must ensure that you do not have any amounts in default. Otherwise, in “tightening situations”, you will not be able to do so. If you are in a situation where you cannot pay your debts, you can apply for integration into PERSI, in order to help you overcome these difficulties. Alternatively, you can also get information from RACE – Support Network for Indebted Consumers – of Banco de Portugal.

Also read: Do you know that your credit card has associated insurance?

Analyze your consumption habits

One of the ways todetermine whether a credit card is a good option for you is through analysis of consumption habits. If you have a tendency to make impulse purchases, such a card can compromise your financial health.

If you don’t give in to impulse purchases and want to take advantage of discounts or other advantages of a credit card, then it may be a good option for you. In addition, by choosing to pay 100% of your purchases, you do not pay interest.

Also read: Premium Credit Cards: What are the most common benefits?

Credit card is not a solution to financial problems.

Finally, one of the biggest mistakes to avoid is use your credit card to resolve outstanding financial issues. This type of card does not bring you more financial capacity every month. It just gives you more flexibility to pay for your purchases. However, this brings challenges and, if overused, possible difficulties.

For example, if you have multiple accumulated debts, you should not use a credit card to pay off another debt. This will only make your situation worse, especially if the interest amount is higher. Instead, you should look for a specialist who will advise you to restructure your debt or consolidate your credits.

Also read: Do you have credit card debt? 7 tips to regain stability

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