The advent of the electronic age has made almost everything possible for people. Identifying and treating terminal illnesses has become easy, reaching uncharted territory has become a possibility, and most importantly; people’s daily lives have been made easier by technology. We now have more convenient stores, easier transportation and a variety of gadgets that make work and play almost effortless.
When it comes to finances, technology – through efficient banking systems and services – provides people with better choices and options for how to manage their finances. Of all the financial management plans that have emerged, one option stands out among the rest – credit cards.
Credit cards, especially for commuters and those with very busy lives, have become an ultimate financial “savior”. More than just a status symbol or an add-on to an expensive wallet, credit cards have revolutionized the way people spend their money.
But beyond the glamour and convenience that credit cards offer, there is much more to this card than most people can imagine.
Credit Cards 101
Before engaging in endless discussions about the benefits and drawbacks of owning a credit card, it is important for people to first have a simple understanding of what a credit card really is in order to maximize its potential.
In layman’s terms, a credit card is a card that allows a person to make purchases up to a limit set by the issuer. A person must then repay the balance in installments and pay interest. Typically, credit card payments range from the minimum amount set by the bank to the entire outstanding amount each month. Since it is a form of business, the longer the credit card holder waits to pay off the full amount, the more interest will accrue.
Since owning a credit card is a liability, only those who are of legal age and can afford to pay back the amount they will spend via credit card are allowed to own a credit card. In fact, most adults in the United States use credit cards because it is so convenient compared to carrying cash or checks with you every time you make a purchase.
It is also important to become familiar with the different types of credit cards before you start building up your credit card balance to avoid the nightmare of debt. Since credit cards are indispensable to most consumers, it is important for them to understand the types of credit cards, including consumer, bank, retail, gold and secured cards. All of these types have two interest rate options, fixed rate and variable rate. In fact, it doesn’t matter if you decide to have a fixed rate credit card because the interest rate is constant. The interest rate on a fixed rate card may change, depending on the decision of the credit card issuer, compared to a variable rate card, which has a higher interest rate. Basically, credit card issuers issue three types of accounts. A basic account agreement, such as a “revolving agreement,” also known as a typical credit card account, allows the payer to make a full monthly payment or, preferably, a partial payment based on the outstanding balance. A charge-off agreement requires payers to pay the entire balance each month so they don’t have to pay interest charges, while an installment agreement, on the other hand, requires payers to sign a contract to repay a fixed amount of credit in equal payments over a certain period of time. Another type of credit card account includes individual accounts, which require the individual to repay the debt alone, and joint accounts, which require the partner to be responsible for payment. Common types of credit cards offered through banks and other financial institutions also include standard credit cards, such as balance transfer credit cards and low interest rate credit cards; credit cards with rewards programs, such as airline mileage credit cards, cash back credit cards and rewards credit cards; credit cards for bad credit, such as secured credit cards and prepaid debit cards; and specialty credit cards, such as business credit cards and student credit cards.
Now that you know how many types of credit cards are available, it’s time to review your goals before applying for a credit card. Some things you should consider are how you will use the credit card for monthly purchases, if you plan to carry a balance at the end of the month, how much of an annual fee you are willing to pay, and if you have a strong credit history, whether your credit needs to be restored. Once you have an idea of what you’re looking for, choose the right credit card for your basic needs by researching the information you need. You can also review the credit cards you’ve researched and compare them.
Shopping for a credit card?
No matter what type of credit card you choose, be sure to discuss your specific financial needs with your financial advisor or accountant before applying for any credit card. It’s important that you understand the benefits of having a credit card, such as security, valuable consumer protections under the law, and the convenience and availability of services. Some of the most popular credit cards include Chase Manhattan Bank, Citibank, Bank of America, BankOne, American Express, Discover® Card, First Premier Bank, Advanta, HSBC, and MasterCard.
While having a credit card is synonymous with invincibility, it can also trigger a person’s craving for material things and can lead to the temptation to buy things they don’t really need. Credit card holders should always keep in mind that owning a credit card is a big responsibility. If they are not careful with it, these individuals may owe more than they can pay back. This can also damage their credit report and cause credit problems that are quite difficult to repair.