Credit cards are a convenient way to borrow money from a bank for purchase. Consumers pay this loan back on a set schedule. Banks charge interest for this convenience if consumers don't repay on time.
Sometimes money for making a purchase is not readily available. At these times, credit cards come in handy. Credit cards allow consumers to borrow money from a bank for purchases. Once the card is used and this money is, in effect, borrowed, the bank expects it to be paid back within a set amount of time. For some consumers, this could be up to a month. Some banks charge interest for credit cards if repayment is late. This means paying the interest in addition to what is owed.
How to Choose a Credit Card
Choosing to use a credit card is agreeing to take on debt. Consumers use credit cards and then owe the financial institution money until they pay their bill. When consumers pay their credit card in full, they won't have to pay interest. If someone makes only small purchases and pays the card in full each month, it may be worthwhile to get a credit card with rewards. These types of credit cards are loyalty programs that accrue points, which consumers redeem. Sometimes consumers need to make large purchases and may not pay off the bill each month. In this case, a credit card with a low interest rate is preferable. Some credit cards have zero interest so it pays to shop around.
Difference Between a Credit Card and Debit Card
Credit card purchases are not automatically withdrawn from a consumer's bank accounts. In contrast, funds from debit card purchases are immediately withdrawn from the consumer's bank account. Debit card purchases do not accrue interest. Since funds from credit card purchases are not immediately withdrawn from a bank, the bank charges the consumer interest for the borrowing period.
Most credit cards are backed by Visa, MasterCard, American Express or Discover. Some stores have their own credit cards. Stores issue them to encourage customer loyalty. These store credit cards are limited to purchases within the store. Some financial institutions offer secured credit cards. These work best for consumers with poor credit. With secured cards, consumers makes a deposit and then makes purchases against this deposit. Paying this bill regularly helps them rebuild credit.
Benefits of Having a Credit Card
Credit cards allow consumers to make purchases that they pay off at a later date. This comes in handy when someone has to make a large purchase. A credit card is easier to carry than cash. Credit cards help consumers build their credit scores. A credit card helps with personal budgeting since expenses are spelled out on the credit statement.
However, a credit card accrues debt. If consumers are not careful, they can rack up a large amount of debt. A large purchase can add up to a high amount of interest over time. It's important for consumers to recognize the difference between wants and needs so that they do not take themselves into a lot of credit card debt.
Credit cards provide a convenience for consumers. As with most things that provide convenience, it does not come for free. Consumers must carefully consider which credit card is right for them. While doing so they should strive to pay off their debts on time when receiving their bill.