Understanding Credit Cards

by : Devin Gilliland

Quite simply a credit card gives you a loan of money to purchases. Everybody has a limit as to how much they can spend, and this is known as your credit limit. At the end of each month you have a decision as to how much you would like to pay off. You must at least pay your minimum repayment, at most clear your credit entirely, or you could choose to pay off something in between.

Don't confuse Credit Card with:

1. Debit Cards - Debit cards are linked to your bank account, and automatically remove cash from your bank account to finance purchases. Please note that with a debit card you are not being given a loan of money.

2. Check Guarantee Card - This is merely to provide safety to a retailer or person who is accepting a check. This means that their bank will pay up to the amount on the check guarantee card should the person completing a payment fail to honor it.

3. Charge Card - The fundamental difference between a credit card and a charge back card is that, with a charge back card, you have to pay back the full amount at the end of each month.

Why would I need a credit card?

1. Less Risk - with a credit card you eliminate the need to carry around large amounts of cash, and that means you stand less risk of losing money or having money stolen.

2. Internet Shopping - If you would like to shop safely online then getting a credit card is almost certainly your best choice. With a credit card you will be able to shop at your favorite online stores, and will also have certain guarantees from your card provider should your goods or services not live up to what you were expecting.

3. Going Abroad? - With a credit card you will be able to have currency converted without the need to go to a money agent. The other inherent advantage is less risk in terms of theft abroad.

4. Spread Costs - With a credit card you can spread the cost of something over a period of months. Let's say you wish to make a purchase that you will be able to pay-off in two months. With a credit card you can have the goods or services immediately.

5. Emergencies - Imagine the situation. You come across a one-off exceptional cost like repairing your car, but you simply cannot afford it. With a credit card you will be able to pay this off immediately, and will not miss work as a result of your car being dysfunctional.

Borrowing money has negative connotations as well as practical advantages. Ensuring that you understand the advantages and disadvantages of borrowing will ensure that you stay out of trouble, whilst still being in control. Please remember that don't make you any richer than you were to start with! Credit Cards only provide a format to finance purchases that you can afford, but don't have the cash upfront. That is why, before you spend any money with a credit card, stop and think if you will have the to pay for it in future, and also consider the likely costs of borrowing this money.