The Use of Credit Cards

vickie-sandersCredit cards can be an asset as well as a liability depending on the sort of card you use and the way you use it. Use it well and you can get additional protection on your purchases and reward points. Use it unwisely and you will end up paying a lot of interest and racking up debt. Here is what you should know about the use of credit cards.

If you do not have a lot of cash in your bank account at the moment, you can use a credit card to pay. Credit cards are an easy and reliable way to pay for internet shopping as well. They are universally accepted around the world. Moreover, you get extra protection if you pay with a credit card instead of a debit card, check, or cash. You will also have security if your card is used fraudulently as your card provider will refund the money. However, you will not get a refund if the card provider finds out that you were negligent, so make sure you do not write your PIN number anywhere.

Few credit cards offer 0% periods, which means you can benefit from an interest-free loan. However, you need to clear your balance before the 0% offer expires or else you will be charged interest. Usually, the interest rate is 18%, which is quite high, so you have to pay your debt off before the interest takes effect.

Credit cards can be a great help in managing your cash flow. Some cards also offer incentives to spend such as loyalty points, Avios air miles or cash back, which means you can actually make money from your credit card. These incentives are only worthwhile if you pay your bill in full; otherwise, the interest you will be charged will be greater than the value of the rewards.

It is significant to remember that a credit card is a form of borrowing that works on the “buy now, pay later” principle. However, the use of credit cards has its risks. If you do not pay off your balance in full every month, you will start to rack up interest at a very high rate. Your debt can quickly spiral out of control, especially if you pay off only the minimum monthly amount. Therefore, you should always try to pay more than the monthly minimum and consider the credit card only as a short-term borrowing facility.

The interest rate is just one of the costs of a credit card. A fee will be imposed if you make your monthly payment late or miss it altogether. You will have to pay a fine if you exceed your credit limit. Hence, if you want to use a credit card, make sure you restrict your spending and pay your bill on time. Do not withdraw cash on your credit card unless you really need to as most card firms require a fee to take out cash from an ATM, which is typically about 2%.