Credit card – pros or cons?
There are those among us who can not imagine life without a credit card, but also those who refuse from it by all possible means. On the one hand, it is associated with falling into debt and living on credit, and on the other – a loan available immediately. What exactly is a credit card and how is it used?
Credit and debit card
A debit card is a means of payment that most of us use. It is a supplement to a personal account, thanks to which we can pay cashlessly for transactions – e.g. for purchases or services. Therefore, we pay only with the money we have in our personal account. If we run out of this money – the card will become useless. Without the funds on your account we will not be able to use the card as a means of payment.
Using credit cards looks completely different. Unlike debit cards, they are not linked to the bank account we have. The bank opens a separate account for credit cards. These are independent financial products. When deciding on a credit card, we also decide on a loan with a certain upper limit – e.g. $ 5,000, $ 10,000 … When paying with a credit card, we do not spend our own money, but we use the funds that the bank has provided us.
Why is it dangerous to have a credit card?
Without controlling your credit card payments, it may happen that we spend more than we can give back in a given billing period. You will not be able to pay by credit card until you reach your debt limit. For banks this is obviously a win-win situation, because then, they earn on our debt. An unquestionable disadvantage of credit cards is also the high interest rate, compared to other loan offers.
Credit card – what do you need to know and how to use it?
One of the most important things related to credit card payments is remembering the interest-free period , during which interest is not charged for using the card. It usually lasts around 50 to 60 days, depending on the bank. Interest will not be accrued if we repay the debt from each statement on time and only make non-cash transactions (without ATM withdrawals). Then the loan granted to us by the bank will only amount to the limit granted on our card.
The interest-free period consists of a settlement cycle and time to pay off the debt.
The billing cycle lasts 30 days and is a summary of all transactions made by credit card (deposits, withdrawals, transfers, payments). It also contains information about the balance as at the day of closing the statement, the amount to be paid (usually about 5% of the debt amount) and the date of repayment of all or part of the debt. The billing period closes on the same day of the month – e.g. the 20th. Time to repay the debt is the period between the end of the settlement cycle and the date of repayment. The exact date can be found on the card statement.
If the bank gives you the option of choosing a debt repayment date (this is the case in most banks), it is worth considering such a date, depending on when you get the account (e.g. in salary) and when we will be able to repay your credit card.
What credit card fees do we have to account for?
A credit card can be a big expense. In addition to possible interest and repayment of the loan, one should also remember about other fees, which include:
- One-time fee for issuing the main card,
- One-time fee for issuing an additional card,
- Annual or monthly fee for having the card,
- Fee for exceeding the card limit,
- Fee for issuing a duplicate card,
- Insurance fee,
- Fee for changing the billing cycle,
- Possible fees related to debt collection activities.
Who can apply for a credit card?
Although banks offer credit cards quite willingly, applicants for these means of payment must meet certain requirements:
- Adolescence, and in some cases completed 21 years of age,
- Minimum $ 1000 net income,
- Seniority – people employed under an indefinite employment contract must show 3 months’ employment in the company. For people who work for a fixed period, it will be a 3, 6 or 12 month period. In the case of people working on a specific contract or work contract, seniority must be at least 12 months, while for self-employed workers it must be 2 years of self-employment.
How can you avoid using the card to get us into a debt spiral?
Of course there is a way. We present a few golden tips that will make using the card much more reasonable.
- In order not to fall into debt by using a credit card, it is worth setting transaction limits on it – thanks to which we can determine the amount we can spend the maximum per day.
- In order not to forget about paying off the debt, we set up automatic payment of the card from the ROR account.
- We always pay all the debt so that we do not live on credit.
- We read card statements carefully and control our list of expenses.
And if you want to learn other ways to avoid getting into debt, read our entry Get rid of debt and sleep peacefully