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Credit cards are a form of unsecured credit. The issuer is extending you a line of credit, usually tacking on all sorts of little surprises in the fine print. This type of credit is probably the most commonly used.

If you have a great credit rating, you're probably bombarded with offers of new cards. They usually carry no annual fees, the interest rates are reasonable (as far as credit cards go), you get close to a month's grace period and there might be some fetching initial offers, such as no interest for 6 months on balance transfers and new purchasers.

Others of us who are not so lucky, might have to pay $20 or more a year for a card, the interest rates will be higher and the come-ons less enticing or non-existent. Grace periods may be as short as 20 days and you might have to make sure you payment is received early enough so the credit card company will consider it paid on time.

Still others might not be able to get anything other than a secured credit card, one where you make a deposit first and then are allowed to charge to the extent of the deposit. This kind of card, while expensive, can be helpful in rebuilding credit if you have had credit problems.

Then there are cards like the original American Express or Diner's Club cards, where you're expected to pay the entire bill every month as it comes due. This kind of card forces you to be more careful with your spending, although it is becoming more frequent for a line of credit to be attached to them also, to allow you to pay for some purchases over time.

Credit cards are not bad things in and of themselves, but can become bad things very quickly. You can charge just about anything and get to pay for it about a month later. You can take part in the many rewards programs and get points for things you would have bought anyway, like food or gasoline. This is all great if you pay off the bill every month.

The problem is that if you run up your credit card debt, but only pay the minimum payment, that $300 TV you got on sale will really cost well over $1000. It can take 10 or more years to pay off a $5000 debt if you only pay the minimum each month. Most people are unlikely to want to pay off a tank off gas ten years after it was used up.

If you read your monthly statements closely, you will see that the monthly minimum payment is barely enough to cover your interest due for that month. You are not making any dent in the amount you owe.

So probably the best solution is to stay away from credit cards. But that probably is also not a realistic solution for most people. And credit cards are necessary for some things; for example if you want to rent a car. They can be very handy in an emergency.

The only realistic solution is to charge only what you can pay off quickly. The next best choice is to pay as much more over the minimum payment due as you can afford. Or consolidate your credit card debt into a lower interest loan or line of credit, but only if you destroy all your cards and never apply for new ones.

Many people made a habit of maxing out their cards and then going bankrupt. Their credit card debt would be wiped out in the bankruptcy court and they would get a "fresh start". In March 2005, the US Congress drastically changed the bankruptcy code, limiting access by individuals to Chapter 7 of the code, which was the section of the law that sharply limited repayment of debt.

Credit card companies now check your credit report frequently, sometimes every month. Even if you are never late in your payments to them, they may decide you are no longer a prime customer and may raise your rate.

Some of the things the banks are looking at is your use of your overall debt ? if your ratio gets too high they get scared. Another event that may trigger a rate increase is a late payment to another credit card company or even to the phone or electric company.

Being even one day late with a payment to any creditor may trigger up to a four times increase in your interest rate. If you're using one of the free or very low interest offers banks use to lure you to them, they will likely hike your rate as high as 29%.

So, one final note about credit cards: do not ignore the little messages the banks send you either in your statement or separately. They may contain nasty surprises, like an increase in your interest rate that you can avoid by simply writing the credit card company and no longer using their card. I personally got one of those love notes, trying to raise my interest rate from about 14% to almost 24%. Needless to say, that card went into the garbage.

Now more than ever, you must learn to use credit responsibly. The quick escape of bankruptcy will be harder to come by and it is just too costly over the long term to ruin your credit rating at any point in your life.

A bad credit score not only affects the interest rate you will pay on credit cards, personal loans and mortgages, but also may affect your ability to get a job, rent an apartment or result in an increase in your auto insurance premiums.

So take those little pieces of plastic seriously and handle them wisely.

Chris Cooper is a retired attorney who is very familiar with debt, being in it too many times in his life. These articles pass on some of the knowledge he has gained striving to become debt free. He is editor-in-chief of http://www.credit-yourself.com a website devoted to debt management.

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