Hedging
Options – Hedging, Trim Risks Not Bushes
Options are frequently used in hedging.
A hedge is an investment made to offset the risk incurred by entering another investment. Ironically, the basic idea is to bet against oneself, in a way.
Speculate that the market price will rise in the future and buy a call today. (A call is an option that confers the right to buy an asset at a set price in the future.) But, knowing that any price rise is uncertain, simultaneously buy a put. (A put is an option to sell at a preset price in the future.)
Now, why would anybody do such a crazy thing?
Well, hedging is, at bottom, a form of insurance. Though there are traders who use it more actively as a profit seeking strategy, such as hedge fund managers. By carefully selecting the appropriate combinations of strike price, expiration date and type of option an investor can minimize risk and maximize the probability of making a profit.
How?
As an example, we’ll consider a common hedging strategy: the Strangle. No, that’s not something you do to your broker. That would be increasing risk, not minimizing it.
In this strategy, an investor holds both call and put options with the same maturity, but with different strike prices.
The contracts are purchased ‘out of the money’ and are therefore cheaper. ‘Out of the money’ means the strike price of the underlying asset is – higher (for a call) or lower (for a put) – than the current market price.
Suppose Microsoft (MSFT) is currently trading at $30 per share. Buy one call at $3 and one put at $2 with the call having a strike price of $35, the put $25. (Total Investment = ($3 x 100) + ($2 x 100) = $500.)
If the price over the length of the contracts stays between $25 and $35 the total possible loss = $500, the cost of the options. Therefore the risk (‘exposure’) is limited to $500.
Suppose the price drops near expiration to $15. The call would expire worthless, but the put is worth ($25-$15) x 100 = $1000 – ($2 x 100) = $800. Subtract the cost of the call, $800 – $300 = $500. This represents the net profit (ignoring commissions and taxes) on the trades.
The difference between the exposure and the potential profit represents a kind of hedge. Though the investor is, in a sense, ‘betting’ that the price could go either way, his downside is limited to the combined cost of the put and the call.
There are, not surprisingly, nearly as many hedging strategies as there are investors. A couple of common types are:
The collar: Hold the underlying asset and simultaneously both buy a put and sell a call of the same asset. The short call limits gains, but the long put hedges against any losses from the underlying asset.
The protective put: Buy the asset and also buy a put option on the same asset. At expiration, the asset may have gained (eliminating the value of the put option), but the rise in the asset offsets the loss.
Exotic combinations abound, but most involve speculating on the price direction of the underlying asset, while taking advantage of the leverage, cost and timing characteristics of options. As with any investment strategy, make sure you understand the pros and cons before laying down your bet.
Categories: Financial Investing Tags:
Options – Calls and Puts
Many readers want to know more details on Options calls and puts. So here is more information on this.
Options are contracts on some underlying trading instrument – shares of stock, bonds, a commodity, a mortgage loan, etc. (The list is endless.)
But regardless of what the option is on, there are common features. One of the most basic is the contract feature specifying what the option owner has actually contracted for.
CALLs
A ‘call’ confers on the (option) contract holder the right to buy an asset at a stated price on or before a specified expiration date. A right to buy, not an obligation. The call owner always has the option to let his option expire. (Of course, he then loses the initial money invested in buying the contract.)
Call buyers are betting the underlying asset – the stock, bond, commodity, etc – will increase in price before the expiration date. And, not only rise, but rise enough to make a profit.
How much is enough?
The price must rise enough to cover the difference between the market price and the strike price (the price at which the stock, say, must be bought). And, since the option itself has a cost, the price has to rise enough to cover that additional amount. That cost is called ‘the premium’.
The cost (the premium) of an option – whether call or put – is determined by several factors, including the price of the underlying asset, the strike price, the time remaining on the option, and others.
(The time remaining is particularly important. Simple common sense suggests that if you have 90 days to exercise an option, your risk is lower than if you have only one day. In 90 days the price may well rise the several points needed to generate a profit. With only one day remaining, the odds are lower.)
Suppose it’s April 1, for example, and Microsoft (MSFT) has a market price of $27. Call options for June 30 are selling for $3 with a strike price of $30. You buy one contract for 100 shares.
So, if you held until expiration you either lose $300 ($3 x 100, the initial price of the contract not including commission), or buy the underlying stock at $30. If the current market price were $35 you’ve made $200. ($35 – ($30+$3) = $2 per share x 100 shares, ignoring commissions.)
When the market price of a share is above the strike price, the option holder is ‘in the money’. If the market price is lower, he’s ‘out of the money’.
PUTs
A ‘put’, by contrast, gives the option buyer the right to sell an asset at a certain price by a stated date. The right, not the obligation.
Puts are similar to ‘shorting stock’, in this sense. Put buyers are betting the stock price will fall before the option expires.
In this case the market price must fall below the strike price in order to garner a profit from exercising the option. (Ignoring the cost of the put, for simplicity.) Under those circumstances, the option holder is ‘in the money’.
For example, take the same situation as above but let the option be a put. If the market price falls to, say $25, your profit would be:
First, $3 x 100 = $300 = Cost of put, excluding commissions.
Then, buy 100 shares at $25 per share = $2,500 to repay broker ‘loan’ (since shorting stock involves borrowing shares you don’t own, then repaying later).
Finally, sell 100 shares at Strike price = $30, 100 x $30 = $3,000
Therefore, your profit = ($3000 – $2500) – ($300) = $200.
(Actually, the broker takes care of all the underlying mechanics. The investor merely orders the trades at a given time and date.)
Whether investing in calls or puts, wise investors do the needed homework. Options trading is risky and somewhat more complicated than simple stock trading. (Which is already complicated and risky enough.)
Study the history, volatility, and other factors of both the option contract and the underlying asset. Blindly throwing darts at a board is the best strategy for losing money.
Categories: Financial Investing Tags:
Options – Calls and Puts
Many readers wanted me to go through the fundamentals of Options. Here you go :-
Options – Calls and Puts
A ‘call’ confers on the (option) contract holder the right to buy an asset at a stated price on or before a specified expiration date. A right to buy, not an obligation. The call owner always has the option to let his option expire. Remember when you buy a call, you have the right and not an obligation. This is very important; basically you don’t risk anything other than the premium.
Call buyers are betting the underlying asset – the stock, bond, commodity, etc – will increase in price before the expiration date. And, not only rise, but rise enough to make a profit.
How much is enough?
The price must rise enough to cover the difference between the market price and the strike price (the price at which the stock, say, must be bought). And, since the option itself has a cost, the price has to rise enough to cover that additional amount. That cost is called ‘the premium’.
The cost (the premium) of an option – whether call or put – is determined by several factors, including the price of the underlying asset, the strike price, the time remaining on the option, and others.
(The time remaining is particularly important. Simple common sense suggests that if you have 90 days to exercise an option, your risk is lower than if you have only one day. In 90 days the price may well rise the several points needed to generate a profit. With only one day remaining, the odds are lower.)
Suppose it’s April 1, for example, and Apple (AAPL) has a market price of $27. Call options for June 30 are selling for $3 with a strike price of $30. You buy one contract for 100 shares.
So, if you held until expiration you either lose $300 ($3 x 100, the initial price of the contract not including commission), or buy the underlying stock at $30. If the current market price were $35 you’ve made $200. ($35 – ($30+$3) = $2 per share x 100 shares, ignoring commissions.)
When the market price of a share is above the strike price, the option holder is ‘in the money’. If the market price is lower, he’s ‘out of the money’.
Why buy PUTs instead of shorting a stock?
A ‘put’, by contrast, gives the option buyer the right to sell an asset at a certain price by a stated date. The right, not the obligation. Again important; you have the right and not the obligation; the risk you have is the premium you paid and that is all.
Puts are similar to ‘shorting stock’, in this sense. Put buyers are betting the stock price will fall before the option expires.
In this case the market price must fall below the strike price in order to garner a profit from exercising the option. (Ignoring the cost of the put, for simplicity.) Under those circumstances, the option holder is ‘in the money’.
For example, take the same situation as above but let the option be a put. If the market price falls to, say $25, your profit would be:
First, $3 x 100 = $300 = Cost of put, excluding commissions.
Then, buy 100 shares at $25 per share = $2,500 to repay broker ‘loan’ (since shorting stock involves borrowing shares you don’t own, then repaying later).
Finally, sell 100 shares at Strike price = $30, 100 x $30 = $3,000
Therefore, your profit = ($3000 – $2500) – ($300) = $200.
(Actually, the broker takes care of all the underlying mechanics. The investor merely orders the trades at a given time and date.)
Remember that options trading is very risky and you may lose all your premium but the returns are wonderful
Categories: Financial Investing Tags:
Tips to Starting your own Business
We know that starting your own business is the first step for a successful career. Here are some tips on starting your own business. Enjoy!
The 9-to-5 grind can make you feel like a just another cog in the corporate machine, constantly punching the clock for someone else’s vision. One day, while dreaming of the world outside the cubicle, you have your big “Eureka!†moment—you’ve come across an idea so perfect that you need to start your own business around it.
Coming up with the idea is the easy part. Now, you’re thrown into an entrepreneurial world where even the experience businessperson can feel overwhelmed by all the details.
It’s hard to know where to even begin. So here are some tips to starting your own business:
Craft a primitive budget: do you have enough capital to get this idea rolling? First things first, figure out roughly how much it’ll cost you including all expenses, and where that money will be coming from. Call in favors from everyone you’ve even leant money to in the past in need be.
Does the business world need you?: is there a large enough demand for your product? Ask around before even attempting to start your business—check with similar businesses in the area, or around the country. Find out how they started, and what kinds of clients they target, to get an idea of where you’ll fit in the market.
Create a strong management team: your team members should share your vision of the business, and a certain amount of proficiency and credibility. Rely on your connections to find the perfect people for the jobs that will bring their expertise to the business. Remember that you will eventually have to set aside your ego and let them control certain aspects of the company, so your have to feel comfortable around your management team.
Start small: instead of immediately trying to market your product to 5,000 companies at once, focus on a few dozen specialized local companies to network with. This way you can call them each personally, mail them your marketing materials, and then arrange a meeting.
Quality matters: you want to be able to set your self apart from all the other businesses similar to yours. Having an eye-catching yet simple to navigate web site and presentation material is key to succeeding in the modern business world. Creating quality marketing tools doesn’t have to cost you a fortune either; consider hiring a design art or marketing student from a nearby university to help out. You never know, you could even meet your next Junior Executive.
Come up with a good business plan: keep it less than 25 pages, and include information about your management team, who your customers as, and most importantly, why the world needs your business. At this stage in the game, don’t over-focus on the financial side of things yet. A business plan outline can be found at http://www.sba.gov/starting_business/planning/basic.html.
For more tips, including an A-to-Z guide to starting your own business, and 21 ways to draw customers in, go to www.entrepreneur.com.
About The Author
Jessica Klein is a member of the ‘Mount Real Research Team’, whose aim is to seek out and distribute business information to the virtual public. She is a freelance writer based in Montreal, Canada who loves writing about anything from accounting to zebras.
For more info about Mount Real, visit http://www.mountreal.com.
jessica@redchilimedia.com
Categories: My Personal Entries Tags:
Like It Or Not, You Have A Score To Settle
Good article on credit scores ; When you invest in many things, make sure that you have good track record to borrow and leverage.
by: CreditandYou.com
Just when most people finish with school and can stop worrying about test scores, there’s a new kind of scoring that enters the picture. It’s called credit scoring. And, its impact on your financial future can mean more to you than a college degree.
You may never know your precise credit score, but you need to know if you’re at risk!
Credit Scoring … Why It’s So Important:
Ever wonder how a creditor decides whether to grant you credit? For years, creditors have been using credit scoring systems to determine if you’d be a good risk for credit cards and auto loans. More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans.
Precisely what is credit scoring?
Credit scoring is a system creditors use to help determine whether to give you credit. Information about you and your credit experiences, such as bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and age of your accounts is collected from credit applications and your credit report.
Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. Total number of points (credit score) helps predict how creditworthy you are; how likely it is that you will repay a loan and make payments when due.
You may never know your precise credit score, but you need to know if you’re at risk!
Why is credit scoring used?
Credit scoring is based on real data and statistics, so it usually is more reliable than subjective or judgmental methods. It treats all applications objectively. Judgmental methods typically rely on criteria that are not systematically tested and can vary when applied by different individuals.
To develop a model, a creditor selects a random sample of its customers (or a sample of similar customers if their sample is not large enough), and analyzes it statistically to identify characteristics that relate to creditworthiness. Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk.
Each creditor may use its own credit scoring model, different scoring models for different types of credit, or a generic model developed by a credit scoring company.
How reliable is the credit scoring system?
Credit scoring systems enable creditors to evaluate millions of applicants consistently and impartially on many different characteristics. But to be statistically valid, credit scoring systems must be based on a big enough sample. Remember that these systems generally very from creditor to creditor.
Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed.
In fact, many creditors design their systems so that, in marginal cases, applicants whose scores are not high enough to pass easily, or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit. This may allow for discussion and negotiation between the credit manager and the consumer.
What happens if you are denied credit or don’t get the terms you want?
For the answer to that crucial question and how to improve your credit score, be sure to read Part II of “Like It Or Not, You Have A Score To Settle.â€
About The Author
Credit and You are a group of expert on credit and the authors of “CREDIT AND YOU … Secrets To Improving Your Credit Rating.†Feel free to pass this article along to family and friends. And be sure to pick up your FREE 7 day course on “Credit Basics†at http://www.creditandyou.com
Customerservice@creditandyou.com
Categories: Eliminating Debt Tags:
Stock Splits and how you can profit from it!
When a company’s stock prices goes to all time, it splits to make it easier for people to buy. So for example when Apple stock goes to around 90 (typically), the company announces a 2 for 1 stock split; basically you get 2 stocks for every stock you own. So if you own 100 stocks before the split, you will have 200 stocks after the split with each stock worth $45.
So what is the great thing about stock splits? Usually the stock that split tend to appreciate in price rapidly compared to other company stocks. For example when Apple splits last time, it has almost doubled and now nearing the same peak.
If you invest on stocks that are about to split, you will most probably be a winner. You can also play your options skill for stocks that are going to split. When stock splits, options also splits. For example if you have an option for Apple stock for $90 expiring in Jan 2008, after the split you get 2 options with a target price of $45 expiring in Jan 2008. The returns on options is spectacular on stock splits .
There are many websites offering “prediction” on stock splits based on the history. One of the website I use is www.stocksplits.net. It is expensive though (about $90 per month) but worth even if you make money on one stock.
Good luck on your investment and feel free to contact us for any questions.
Categories: Financial Investing Tags:
Recommended book on Stock Options
Review of book How to Make Money With Stock Options: A Basic Guide for the Conservative Investor (Hardcover)
by Mervyn L. Hecht
I recommend this book to all our readers who want to learn more about stock options and how to profit from it. It teaches many basic concept about option trading and how to profit from it. It describes basic strategies, how to write covered calls (which we will explain in a future blog). It also talks about time value premium, spreads, option tips and much more.
This is a very east to read and understand book. There are lot of step by step examples in the book.
Categories: Product and Book Reviews Tags:
Choosing your credit card
Here is a good article on credit cards; my favorite card is associated with a charity organization. Whenever I swipe, part of the money goest to that organization. Good way to contribute back to society. Read on and your comments are welcome.
Reach into your wallet or purse, pull out a card, swipe, and you’re done. It is very easy to use a credit card. The problem lies in choosing a card – and it has nothing to do with the picture on the front! Choosing a credit card that works best for you is vital to your credit rating. If you choose incorrectly, you may find yourself in deep debt trouble. Here is some basic, yet extremely important, information that will help you make the right choice.
Your Money Handling Habits
Choosing a credit card that is perfect for one person may be a dismal failure for you because your habits are different. When it comes to choosing your credit card, you need to look very closely and honestly at your habits.
For instance, do you typically carry a balance or do you pay off the card at the end of each month? If you answered “yes†then you will need to shop for:
A low Annual Percentage Rate (APR). The APR the interest rate you will pay on any outstanding balances each month. The higher the rate, the more you will pay in interest charges.
A fixed-low rate. This means that they will guarantee that your rate will stay low. Oftentimes, a company will offer a low introductory rate to get you signed up and then increase the rates drastically in 3, 6, or 9 months. The problem with a guaranteed rate is that an annual fee often accompanies it. You will need to decide if the lower interest rate guarantee is worth the cost of the annual fee.
If you will be paying off your card at the end of each month, you will not have to worry as much about a low APR since you will not be using it. And with no need for a guarantee, you may be able to avoid yearly fees. However, you will want to be sure to get a card with a grace period.
Grace Period: Be careful to get a card that allows you to pay off your bill at the end of the month with no finance charges. Those that don’t offer the standard grace period begin charging you interest the moment you make a purchase.
Cash Advance Fees: Be aware that most cards charge interest, and sometimes at a higher rate, for cash advances and this charge begins with no grace period even if your card offers a grace period for purchases.
You also need to decide how reliable you will be when it comes to paying on time and keeping yourself under the card limit. If you are often late paying your bills or often do not know how much credit you have left, you will want to watch out for transaction fees and other charges. Many card companies charge a late fee and an over-the-limit fee. These can be substantial. Your best bet is to pay on time and keep under the limit, however, finding a card with lower charges is a good idea.
Here is another important question to consider when looking at your money handling habits: Do you use the card rarely, occasionally, regularly, or frequently? Those that use their cards for just about everything instead of using cash or checks will want to look for credit card protection. This way, if you lose your card or it is stolen, you will not be responsible for any purchases made.
Finally, consider the different benefit programs that cards are offering.
Do you travel? Then consider a card with frequent travel miles as a reward. Or perhaps one that offers traveler’s insurance.
Do you use your card for large purchases like electronics? You may want to consider credit card insurance that will replace your equipment for a specified period of time if it breaks down or gets stolen.
Are you saving to buy a new car? There are cards that offer new car rebates.
Do you have a favorite charity? Many cards now support specific charities, universities, and organizations by paying the entity a specific amount with each purchase you make.
What matters most is to find the features that fit your pattern of spending and paying. Don’t get fooled by the gimmicks or the advertisements. Know your spending habits, look at the small print, and choose the card that is best for you. With all the different cards available, you will be able to find the right fit for you.
About The Author
Wesley Atkins is the owner of http://www.credit-cards-advisor.com- which aims to get you fitted with the best credit cards to suit your situation. With numerous credit card articles and easy online credit card applications you will never choose the wrong credit card again.
Categories: Saving Money Tags:
The Metamorphosis of the Successful Executive… Overcoming Professional Stagnation
You’re a bright, successful business executive making good money and managing a capable staff of accomplished professionals. You are successful beyond your wildest business school dreams. You’ve achieved much-yet something’s missing. On the surface, life is good-yet you feel tired, drained, frustrated, defeated. Intuitively, you know your life can and should be more fulfilling.
Where do you turn? What can you do?
Four years ago, I reached a point in my career as a clinical psychologist where I, too, was unwilling to put up with any more professional “”pain”" and stagnation. I wanted more for my life and I knew I could have more. That’s when I teamed up with a personal coach and began my own career transition to the relatively new profession of “”Personal Coaching”" . . . and I’ve never looked back.
Working with a personal coach provided me the direction and support I needed to reinvigorate my own life and change my career-to recapture my voice, my sense of purpose, my sense of direction. It’s something you can have, too. Here’s how.
With personal coaching, frustrated executives get back on track, re-energized, and are better able to positively influence their company and their peers. Working with a coach unhappy executives learn to set limits, to establish boundaries and to delegate. They become clearer in their goals and better able to communicate their values. They develop actionable strategies to improve their listening and interpersonal skills. They begin to make things happen, to set the pace for their own lives at work and at home, and-most importantly-they begin to eliminate stress.
A 2001 quantitative study of 100 executives, mostly from Fortune 1000 companies, places the return on investment for executive coaching at nearly 6 to 1. The study, conducted by Manchester Inc. (a globally-recognized provider of executive coaching services), also revealed that coaching increases organizational strength, productivity, quality, customer service, shareholder value, and executive retention.
The question you must ask is “”Can I afford not to work with a coach?”"
Working with a personal coach you can become a better manager-better able to lead and inspire your teams. You create an improved workplace environment where risk-taking and innovation is encouraged. Your employees become loyal, productive and more satisfied. Recruitment efforts take off. Customer relations and service improves. Your customer base grows. Profits grow, too.
Coaching doesn’t work for everyone. For people who procrastinate, who are not willing to do the work, or who view coaching as “”touchy feely”" or frivolous, coaching won’t be successful.
A coach is not a consultant. He or she does not have the answers-the person being coached does. A coach asks the big questions, provides feedback, offers support and constantly challenges the client to reach further – sometimes well beyond the client’s current vision. The coach helps the client reduce stress, integrate self-care (exercise and healthy habits) into their lives, and make time for what is important. A coach can also provide resources and tools to help the client stay focused and achieve their goals.
Coaching relationships can be short- or long-term experiences, often ranging from three to six months to a year or more. Most often, individuals work with coaches by phone or in-person for a specified number of sessions per month. Coaching can also take place in groups, through teleclasses, and even in seminar or workshops settings.
Working with a coach is a highly personal experience, so finding the right coach-someone with whom you feel comfortable-is critical for success. The coaching industry estimates that there are more than 20,000 coaches-personal coaches, business coaches, marketing coaches, etc.-in the United States alone (and perhaps as many as 100,000 worldwide). When seeking a coach you should plan to interview several candidates at a minimum to find a good match.
With the right coach and a personal willingness to try new things, to experiment and to make and learn from your mistakes, you can turn achievement and success into something more. Working with a coach, you can look challenge squarely in the eye, face emotional hurdles at work and at home, and overcome them-embracing life’s “”adventure”" as you intuitively sense more rewarding opportunities ahead.
(c) 2004, Steven Bacharach Psy.D. All rights in all media reserved. This article may be reprinted so long as it is kept intact with the copyright and by-line.
About The Author
Steven Bacharach, Psy.D. is a personal coach to executives who are seeking more fulfillment in all areas of their life. To learn more about coaching and arrange a complimentary session, contact Steven Bacharach Psy.D. by email at stevenb@onthemarconsulting.com, by phone at (508) 358-9565, or visit his Web site at http://www.onthemarconsulting.com
Categories: Business Knowledge Tags:
CD Investment Ideas
Many readers especially those who are retired are asking me some investing ideas with CDs; I have analyzed few offers and found one from www.everbank.com looks good. This CD they are offering is from Iceland and it gives APY of 8.24%. The minimum investment is $10,000. There are no monthly fees, FDIC insurance, online access and you get a good support.
I have been using everbank.com for my business account and I am quite happy with their service. Plase check it out and taalk to one of the investment specialists
As always good luck and make decisions with your head!
Categories: Financial Investing Tags:
Some more resources on Options
Many readers have contacted me to learn more about options; I will be adding links where our readers can learn more about options and make more profit.
Here is a page from Fidelity where you can find valueable information.
http://personal.fidelity.com/products/stocksbonds/content/options.shtml
Good luck!
Categories: Financial Investing Tags:
Your Guide On Choosing a Credit Card To Suit You
by: Wes Atkins
Reach into your wallet or purse, pull out a card, swipe, and you’re done. It is very easy to use a credit card. The problem lies in choosing a card – and it has nothing to do with the picture on the front! Choosing a credit card that works best for you is vital to your credit rating. If you choose incorrectly, you may find yourself in deep debt trouble. Here is some basic, yet extremely important, information that will help you make the right choice.
Your Money Handling Habits
Choosing a credit card that is perfect for one person may be a dismal failure for you because your habits are different. When it comes to choosing your credit card, you need to look very closely and honestly at your habits.
For instance, do you typically carry a balance or do you pay off the card at the end of each month? If you answered “yes†then you will need to shop for:
A low Annual Percentage Rate (APR). The APR the interest rate you will pay on any outstanding balances each month. The higher the rate, the more you will pay in interest charges.
A fixed-low rate. This means that they will guarantee that your rate will stay low. Oftentimes, a company will offer a low introductory rate to get you signed up and then increase the rates drastically in 3, 6, or 9 months. The problem with a guaranteed rate is that an annual fee often accompanies it. You will need to decide if the lower interest rate guarantee is worth the cost of the annual fee.
If you will be paying off your card at the end of each month, you will not have to worry as much about a low APR since you will not be using it. And with no need for a guarantee, you may be able to avoid yearly fees. However, you will want to be sure to get a card with a grace period.
Grace Period: Be careful to get a card that allows you to pay off your bill at the end of the month with no finance charges. Those that don’t offer the standard grace period begin charging you interest the moment you make a purchase.
Cash Advance Fees: Be aware that most cards charge interest, and sometimes at a higher rate, for cash advances and this charge begins with no grace period even if your card offers a grace period for purchases.
You also need to decide how reliable you will be when it comes to paying on time and keeping yourself under the card limit. If you are often late paying your bills or often do not know how much credit you have left, you will want to watch out for transaction fees and other charges. Many card companies charge a late fee and an over-the-limit fee. These can be substantial. Your best bet is to pay on time and keep under the limit, however, finding a card with lower charges is a good idea.
Here is another important question to consider when looking at your money handling habits: Do you use the card rarely, occasionally, regularly, or frequently? Those that use their cards for just about everything instead of using cash or checks will want to look for credit card protection. This way, if you lose your card or it is stolen, you will not be responsible for any purchases made.
Finally, consider the different benefit programs that cards are offering.
Do you travel? Then consider a card with frequent travel miles as a reward. Or perhaps one that offers traveler’s insurance.
Do you use your card for large purchases like electronics? You may want to consider credit card insurance that will replace your equipment for a specified period of time if it breaks down or gets stolen.
Are you saving to buy a new car? There are cards that offer new car rebates.
Do you have a favorite charity? Many cards now support specific charities, universities, and organizations by paying the entity a specific amount with each purchase you make.
What matters most is to find the features that fit your pattern of spending and paying. Don’t get fooled by the gimmicks or the advertisements. Know your spending habits, look at the small print, and choose the card that is best for you. With all the different cards available, you will be able to find the right fit for you.
About The Author
Wesley Atkins is the owner of http://www.credit-cards-advisor.com- which aims to get you fitted with the best credit cards to suit your situation. With numerous credit card articles and easy online credit card applications you will never choose the wrong credit card again.
Categories: Saving Money Tags: