What are Credit Cards?
A credit card is a financial agreement between the cardholder and the bank or credit union. This card contains a magnetic stripe that contains the holder’s personal identity and protected information. This card also contains the cardholder’s photo and is used at Automated Tailor Machines or ATM’s.
It is a small card that contains the complete financial details of the clients. The lender sets the terms of the agreement, including how often payments will be made, what the minimum payment will be, and what interest rates will apply. The borrower has to pay not only the borrowed amount but also the additional charges based on the interest rate.
The credit card is a beneficial tool for customers. Some of the benefits are:
- emergency protection: If you ever have an emergency, you’ll see how helpful a credit card can be. Whether you have medical bills or auto repair fees to pay, these credit cards can be used anywhere, anytime.
- Convenience: There is no need to carry money in your wallets. Just the plastic card is enough. You can buy whatever you want at any time, even if you don’t have cash with you.
- Building your credit: If you dream of buying a really nice house or car, you should have a credit history that shows you can get into debt and pay it off on time. You can use a credit card to make small purchases and increase your credit score by paying your bill on time.
- Security: Large amounts of cash can be lost or stolen. But if your credit card is lost, you can cancel the account and issue a new card without losing any of your money.
Credit cards can help you improve your daily life if you use them responsibly. But the temptation to live beyond your means and max out your credit limit can be a problem. That’s why it’s important to think of your credit cards as tools you can use.
Some of the important things to keep in mind that will help you manage your credit card debt are:
- Back to Cash: If you’re having trouble keeping your credit card in your pocket, go back to using cash for a while. Using cash for a while will help you remember that small purchases add up.
- Make a budget: The first step towards financial freedom is a realistic budget. Sticking to a budget will help you avoid splurging with your credit card.
- Get credit counseling: If your debt gets out of hand, talk to someone! Ignoring your credit problems will not make them go away, it will only make them worse. Talk to your parents or a trusted friend who can help you, or consider getting help from a group or institutions that can help you with your problems.
- Set a limit: Many analysts recommend keeping your credit card balance around 30% of your credit limit to get the most benefit from the formula used to calculate your credit score. You must promise yourself that you will not go over the limit and that the credit card debt will not get out of hand.
There are many benefits of having a credit card. If you understand that credit card money is like a loan, things would be better. If you aim to clear your credit card balance every month it will be beneficial, otherwise interest will be charged on the balance and there may be all the consequences that occur with the loan.
