Basic Concepts of Credit Cards.

Credit Cards are becoming more accepted in our society as it avail you of the opportunity to access soft loan on the go. It’s important to note that Credit Cards are a recent phenomenon and their ubiquity is owing to the ease with which Banks give these Cards. The reason is that Banks make tons of money through the issue and usage of these credit cards at the expense of the consumers. The hidden costs of credit cards are not known to the recipients of this cards. This money is taken from the vendors of the goods and services who in turn charge you for this extra money that they pay. However, Credit Cards also have substantial advantages if they are used wisely. Just as known in case of credit and debit, the human mind is not prone to prudence and care. Many in western world are in serious debt as a result of having access to credit card funds. The ‘short term pleasure’ of buying stuff from your credit cards is too much to resist for most people. If the credit was unavailable, then people would not have fallen into the problem of debt in the first place.

Below are some of the many advantages of credit cards:

a)      Convenience – Credit Cards are very convenient in the sense that you don’t need a wad of money to purchase something. You don’t need to make sure that you have physical cash for purchase. You don’t need to have enough wealth to buy something. You just need to pull out your card, swipe it and the goods are yours

b)      Allows Online Purchases and Sales – Credit Cards have become an essential part of our internet economy and e-commerce, things can be bought online only through debits or credit cards. It’s not possible to pay by cash over the Internet so Credit Cards are essential if you buy things online.

c)       Gives Rewards/Cash Back in some Cases – Credit Cards give rewards for high usage such as airline tickets and some luxury goods. You generally get some points each time you use a credit card. These points are accumulated and in the end you can buy something with those points.

d)      Free Credit for a Limited Period – Credit Cards have a time period between billing and actual payments in which the credit card does not charge you an interest. This interest free period is a benefit of the credit card as you save on the interest.

e)      Reduces the risk of Carrying Cash – For big purchase which needs large amount of cash, the use of credit cards reduces the risk to the barest minimum, as the transaction can be concluded with your credit card.

f)       Allows a Large Purchase in case of Emergency – Credit Cards allow you to pay for an emergency when you don’t have enough money, example in case of a urgent medical attention where you need to pay something immediately, your credit card can will come in handy. It will always ensure you are not cash trapped.

g)      Foreign Currency Transactions Ease – Credit Cards can be used in foreign countries without converting your money into foreign currency. Though this involves some cost, it is more convenient

h)      Protection in case of Theft or Loss of Credit Cards – Credit Cards have 24/7 helplines where you can report the loss or theft of your credit card. This allows the credit card to be blocked so that someone else cannot use your credit card.

Let us look at its disadvantages too:

a)      High Interest Rates – Credit Cards carry the highest interest rates of all the different types of loans and mortgages. They also charge you a lot of fines for payment delays.

b)      Debt Traps – Credit Cards are dangerous for people who lacks financial discipline for instance shopaholics. It allows you to pile up debt easily as you don’t need to apply for a loan. You can have multiple credit cards and carry huge debt. You can be stuck in a debt trap if your monthly earnings cannot cover the interest payments on your credit card debt.

c)       Complex Fines and Fees – Credit Cards have complex fines and fees which makes it very difficult for a normal person to understand. They have late payments fines plus they also charge tax and maintenance fees. They can add a variety of fees such as fees for withdrawing cash with your credit card etc.

d)      Promotes Spending Over Saving – Credit Cards make it easy to spend and harder to save. As you would have over shot your monthly allocation and spent your savings in the process,

e)      Credit Card Theft – Credit Card Numbers can easily be stolen by identity theft fraudsters. Billions of dollars are being lost every year through credit card number theft. It is much easier to steal credit card information than cash. Online crime thrives on stealing your credit card details.

Let me close this post with this simple advice, if you have to get a credit card probe your financial discipline level and be real to yourself, also ask a lot of question from start to finish. The truth is never get a credit card to feel among, it is not meant for everybody.

I remain your friend and Personal Finance Coach Babatunde Ayorinde, follow me on twitter @pistis03,

And if you like to engage us to speak in your program or for adverts send us mail at babat09@gmail.com.

Thanks for reading, invite you Family, Friends and Foes to read the blog, as we move ahead to our financial freedom.

    It’s going to be a great 2017