|
How Credit Cards Work
By: Joshua Shapiro
Credit cards are, to put it bluntly, fantastic. That is, they can be fantastic
if you know how to use them correctly, and know how credit cards work. If you
don’t know these things, credit cards can be a wild and sometimes scary ride
through debt and financial ruin. Are we being melodramatic? You would know that
we aren’t if you’ve ever met someone who has had a credit card problem.
The issue is: credit card companies make money when you wrack up debt on their
cards. They make their most money when people only pay their minimum monthly
payments on them, and allow their debt to build up and accumulate month after
month. That’s where the annual percentage rate, or APR, comes into play. That’s
the interest rate, usually high, that you pay every month on your outstanding
balance. Your minimum monthly payment barely covers that, so your debt just sits
there and builds.
On the other hand, if you make your monthly payments, in entirety, and start
each month with a blank slate, your credit card can become the key to freedom
and financial success. It allows you to roam the world free of cash, while
buying dinner for your loved ones, a night out on the town, a new television, a
tank full of gas—all with a swipe of a card. At the end of the month, don’t
worry. Those charges will appear on your statement—and hopefully you will pay
them off and have a blank slate to make more charges the next month.
The difference between the first and the second situations with credit cards is
simple—credit cards work if you use them within a budget. In other words, never
use them when you can’t afford it, and always know what you can and cannot
afford.
Sound hard? Nowadays, you can actually train yourself for a credit card if a
budget sounds like an impossible task to you. The "trainer" credit card is an
ATM debit card. It works exactly like a credit card, in that you can swipe it at
stores, shops, and restaurants wherever any credit card is accepted. The
difference is that behind that swipe is your bank account. If you don’t have
enough money in your account for a purchase, the swipe won’t go through.
With a debit card, then, you are forced to know what you can, and cannot, afford
before you go swiping away. So if you ever want to learn how a credit card is
supposed to work, try starting with a debit card first.
About the Author:
Joshua Shapiro recommends Find Credit Cards to find a Discover credit card
application that’s right for you. See http://www.findcreditcards.org/issuer/discover.php
for more information.
|
