Have you ever used a credit or are still using credit to pay your bills? Is it an exciting experience? I know you have plenty of stories to tell about your credit card. The good news is that a credit card is a convenient financial product that can be used to sort out daily purchases such as groceries, gas and other goods and services. In addition, credit cards are convenient because you don’t have to carryhuge amounts of money to make payments. In risk places, credit cards are the best because no one can rob you of your money.
A credit card gives cardholders an opportunity to build credit, earn rewards and cash back. It is important to remember that when you are making a purchase with it, primarily the card acts as a short-term loan that must be paid back. Normally, the loan has an Annual Percentage Rate (APR). APR is the rate the cardholder is supposed to pay if the interest charges accrue but payback plan is done according to the terms of your credit card agreement. There are many factors to determine APR. These factors include
i) Person’s creditworthiness
ii) Payment history
iii) And the type of credit card
Individuals with a strong credit history are likely to get a lower rate than someone with little or no credit history.
There is a huge difference between credit and debit card. Debits cards are directly linked to a market or checking account. The cards are debited from the available balance in that account. Unlike the credit card, there are no monthly bills or interests rates connected to your debit cards. All credit cards have a credit line which determines the maximum amount of credit available for the holder to make purchases. The credit line is determined by the following factors:
i) Person’s credit history
ii) Person’s income
iii) How much of their current available credit they are using
Benefits of using a credit card
Some people may wonder what the benefits of credit cards are. Why use them and yet they are expensive compared debits cards? The truth is, when you responsibly use credit cards, they can be valuable tools for earning rewards, traveling, handling emergencies, or unplanned expenses.
Automatic warranty doubling
Most of the credit cards allow the holder to extend the warranty on their purchases. For example, if you buy an iPod and it breaks before the warranty expires, the good news is that your credit card will cover it up to an additional year.
Car rental insurance
Do not let a car renting service provider bully you with extra collision insurance if you rent a car. The demand is completely worthless. Already you have coverage through your car insurance. In addition, your credit card can back you up to $50,000.
Last year, when I couldn’t find an LA Philharmonic ticket, I contacted my credit card provider and requested the concierge to try and find some. In two days, they called me back with tickets. Even though they charged me, I was able to get them when nobody else could.
Helps a holder to get interest free loan
Amazingly, some credit cards offer 0% interest period that allows you to effectively borrow for free. The cards only require you to make monthly payments. Paying the minimum monthly requirement does not block you from borrowing for free until the period ends. During this period it is best to pay up your debts otherwise, you could be placed back on the standard rate if you fail to pay on time or exceed your credit limit.
You can get benefits and rewards
Different credit cards come with varying benefits and incentives. The variety gives you an opportunity to pick the right one depending on your needs. If you are a keen shopper, you might find a cashback or store credit card that suits your needs. For those individuals flying you might prefer an airline credit card.
The cards are beneficial when traveling
Many major car rental companies and hotels demand credit or debit card to reserve a vehicle or book a room. Normally, the procedure takes several days or longer. During this period, the amount in credit card may not be available.
Disadvantages of using a credit card
There is a possibility of debt
Credit cards put the holders in the risk of rising debt. If you do not have a credit card, kindly take note! Some credit cards charge exorbitant interest rates thus exposing you to debt. The interest rate charged can be as high as 20% and this can build up very fast if you don’t pay the balance off.
Your credit score
If you let your debt build up, or miss payments, definitely, your credit score will be affected. If your credit rating is lower, the harder it will be to apply for credit in future
Some providers can limit you on how and where you can use your credit card. For instance, they can charge for withdrawing cash or using the card abroad unless you stated in the credit agreement. Why limit you and it is your money? The approach is totally unacceptable because at the end of the day you are the one who will pay back the money. I totally disagree with such an approach.
How To Use Credit Cards Responsibly
Just like other financial products, credit cards are most useful when the cards are used responsibly. Before you open a credit line, it is important to have a well thought-out plan on how to make the payments and how to responsibly use the newfound purchasing power.
It is beneficial to use a credit card for purchases that give you an opportunity to pay back the balance within a reasonable time frame. If you do not have a well laid-out plan on how you will pay back the money, there is a possibility that the interest will accumulate.
In addition, avoid using your credit card for impulse purchases or unaffordable items if you know that you cannot pay back the money within a reasonable amount of time.