Credit cards offer consumers many advantages. These include the convenience of making purchases online, shopping now and paying over an extended period of time, and gaining access to goods and services in almost every country in the world.
Many credit cards even offer rewards each time a purchase is made, such as earning frequent flyer airline miles or having charitable contributions made in your name. A credit cardA plastic card with a magnetic stripe on one side that can be used to purchase goods and services. The issuing company records the purchases, bills the purchaser, receives payment, and subsequently settles the purchaser’s debts with the providers of goods and services. Some credit cards offer cash advances to its holders. purchase could help a college alumni association, an environmental organization, or a religious group. There are cards to meet the needs of everyone, including secured credit cards for those who have been rejected for a card without a security deposit.
Costs and Benefits of Using a Credit Card
It is important to analyze the costs and benefits of credit card purchases. Remember to comparison shop. Like loans, not all credit cards are created equal. It is also important to remember the longer you take to pay off your balance, the more expensive the goods and services purchased become.
Advantages of Using Credit Cards
- Establish a credit record.
- Buy clothes now and enjoy while still paying for them.
- Obtain cash advances when broke.
- Rent sports equipment, get cell phone service, and other things that require a credit card.
- Have funds available for emergencies.
- Enjoy a sense of having money to spend (i.e., well being).
- Earn special credit card bonuses like airline frequent flyer mileage.
- Be able to act on the spur of the moment without money.
- Easily buy tickets to events (over the phone and via the Internet).
Disadvantages of Using Credit Cards
- Paying more for a product or service (if balance is not paid off in full each month).
- Paying large interest charges and fees.
- Being tempted to spend too much (i.e., living beyond one’s income).
- Suffering the stress of making payments.
- Paying off cards can become a huge financial burden.
- Paying for purchases continues long after they have been enjoyed.
- They can make it “too easy” to shop.
- Using one card to pay off another card (i.e., downward spiral).
- High minimum payments can mean years to pay off the balance.
- Credit card companies may charge a fee just for having the card.
The APR, credit limit, finance chargeThe cost of credit, including interest paid by a customer or a consumer for a consumer loan. Under the Truth in Lending Act, the finance charge must be disclosed to the customer in writing., creditorThe lender or supplier of money, goods, services, or securities; A person or organization which extends credit or lends money to others. , interestAn amount of money paid for using funds over a period of time, generally an annual percentage rate. Bank interest is both an amount paid to depositors of funds and a finance charge for money that is borrowed. The price that someone pays for the temporary use of someone else’s funds. Interest is also a compensation that someone receives for temporarily giving up the ability to spend money. , minimum payment On a credit card account or loan, a fixed percentage of the balance due which must be paid each month. , overlimit fees all vary from loan to loan, making comparison shopping even more important.
Applying for a Credit Card
Your first responsibility when considering the use of credit cards is to comparison shop (i.e., analyze fees, interest rates, credit limit, etc.). When “shopping for credit cards” it is important to determine the rate of interest, the annual feeA charge by some credit card companies for use of the card and services. , and any overlimit fees that are included as well as to compare credit limits.
Remember to read the small print! By law, all credit card solicitations must include a disclosure statementFor credit cards, the reporting of the exact terms and conditions under which credit will be extended prior to applicant signing up for the card. that highlights the exact terms and conditions under which credit will be extended. Terms in the disclosure footnotes can also include the stipulation that the card-issuing bank reserves the right to change the account terms (including APR) at any time for any reason. When a credit card is signed, the law assumes that you have read everything on the disclosure statement and that all terms and conditions are accepted.
What if You Don’t Qualify for a Credit Card
If your lack of credit prevents you from qualifying for a regular credit card, a secured card can be an important tool in building your credit. A secured credit cardA credit card that is secured against loss by other assets (often by money placed in a savings account with the credit card company). can be used at the same places you would use a regular credit card but is tied to the funds in your savings account. If you have $500 in your account, you can charge up to $500 on your card. The secured card can also be advantageous for rebuilding credit when your credit worthiness has been damaged by negative credit history. Remember to always compare rates and fees on various “secured” credit cards and to weigh the advantages and disadvantages.
Enter your credit card balance to calculate how much interest you will pay.
If you paid the minimum payment of $ every month, it would take you
months, to pay off your debt and you would pay $ in interest.
Use the controller below to see how much money
you can save by paying more than the minumum payment.
Months to pay off: 62
Total interest: $538.62