How to use a credit card correctly
Nowadays, the use of credit cards surprises no one. Unfortunately, not everyone knows the rules of handling them, how a credit card works and whether it is actually beneficial. Hence the sad statistics: every third person is a debtor of a bank or other financial institution. And yet: the conditions for using credit cards really make it a convenient tool for shopping and other payments, or is it nothing more than an advertising gimmick?
Why are credit cards so enticing?
A credit card is a very convenient and quick way to get the necessary amount of money, which means that you can not put off buying the necessary (or not) things for later. Seeing an advantageous offer from the bank, a person goes out with a passport, and returns home with a plastic card with money on it.
The credit card is a pass to a world of almost unlimited spending. It evokes a sense of wealth, because you can go out and buy everything you need right now. Especially fog people’s minds the words “no interest,” but all credit cards involve some kind of fee: commission, extra options, mandatory fees, annual maintenance, payment of “mobile banking. The borrower’s brain is often built in such a way that he does not see any nuances, except for the fact that there is no interest for using a credit card.
But it is important to understand that the money a person uses to pay with a credit card belongs to the bank, not to him. Generally, you have to pay back more money than you spent, no matter how good the bank offers. To avoid being on the list of debtors, you have to know that using credit cards requires a lot of responsibility and knowledge.
In order not to become a debtor, you need to answer three questions:
- Will you always be able to pay the bill on a particular day of the month?
- Is the credit card really necessary?
- Is there an additional source of income, if suddenly the paycheck is delayed and there is nothing to pay?
Credit cards prepare a lot of pitfalls for users, so you should get acquainted with all of its features in advance.
Pros and Cons of Credit Cards
Like any form of credit, credit cards have their pros and cons. The pros are as follows:
- you can pay for any purchases and services and online and in stores where there is cashless payment;
- Many banks offer grace periods, bonuses and special offers, such as cashback;
- opportunity not to pay any interest during the stipulated period;
- convenient and safe way to store money (for example, when traveling, it is more convenient to “carry” money on the card than to carry cash);
- more advantageous than consumer credit: you pay exactly as much as you need to pay for a good or service;
- The card limit is determined based on a person’s ability to pay.
When traveling abroad, you can choose the most convenient payment system out of the three existing ones. If a person is not planning to go abroad, there is no fundamental difference between payment systems. But for traveling, it is better to pay attention to this point: Visa is more suitable for North and South America, while MasterCard is more suitable for Europe.
You can’t overlook the disadvantages, which are also there:
- A higher interest rate compared to consumer credit;
- Mandatory fees and service charges for the card;
- it is not profitable to withdraw cash.
But the most significant disadvantage is the impossibility to be a little late with the payment. If, for example, the date of salary coincides with the last day of the debt, and it is delayed, immediately accrue interest, and no small. If a person is not responsible or does not have a stable income, you can very quickly go “in deficit” and work exclusively on repayment of interest.
Especially insidious in this sense are the most profitable, at first glance, cards with a grace period. The first thing you need to know is how to calculate the grace period.
How is a grace period calculated on a credit card?
Most people choose a grace period, or grace period, as it is called. This is a period of time during which you can use your credit card funds without interest.
The grace period can be calculated in three ways, which are determined by the bank and the terms of credit.
Based on settlement period
Most banks prefer this method. It is the easiest, because it is immediately clear how to use a credit card without interest.
The period during which you don’t have to pay interest on your credit card is made up of a billing period (1 month) and a payment period which is determined by the bank.
Payment period is the time during which you have to make a payment: the full amount or the minimum payment. Interest is not charged only if the borrower makes the entire amount at once. Your repayment period at a bank is usually 20-70 days, but in some cases it can be longer.
You can easily find out how much you owe by sending a bank statement to your e-mail account and in your personal bank account at the end of the repayment period. The statement indicates all card transactions during the period of use, the amount owed, and the repayment period.
Here is another nuance of this calculation formula: the accounting period can start either on the 1st day of the month or on the date of activating (issuing) the card.
From the first purchase
This option is the most advantageous for the client. The grace period starts on the day of the first credit card transaction. For instance, if you picked up the credit card in September and decide to buy someone else a New Year’s gift, you make the purchase in December and the interest-free period starts only after that.
On a transaction-by-transaction basis.
The most complicated option for the client because the grace period starts new for each payment. Debt repayment period is different for each purchase, so it’s very easy to get confused, make a mistake and overdue the next payment, especially if the person uses the card frequently.
To avoid mistakes with calculations, the borrower is offered to monitor the situation in a personal account. It reflects all transactions, debts and completed payments.
Rules of credit card usage
Not everyone can boast of financial literacy. In daily life, it is called “not to read what is written in small print. The terms and conditions of credit cards, payment dates and amounts of payments are indicated in the documents which a person signs when opening a credit card. However, there are rules that apply regardless of the bank’s policy and lending terms. If you know them and do not violate them, the answer to the question “is it profitable to use a credit card?” will be positive.
- You should not take a credit card for everyday use. If a person doesn’t have enough money for small expenses (groceries, clothes, household chemicals), a credit card is a bad option. In this case, you should reconsider your spending and start budgeting. A credit card will only make things worse, but bank employees are unlikely to answer honestly if you can use your credit card as a debit card.
- A credit card is suitable for people with a stable and predictable income. People, whose income depends on the season or the number of work shifts, will find it difficult to control the status of the credit card and make payments on time.
- It is not a good idea to withdraw cash: the grace period does not apply to withdrawals, and you must pay interest on the transaction. The same applies to card-to-card transfers, paying utility bills online, and purchasing electronic currency. Some purchases will be cheaper than paying with cash, due to the cashback function.
- Ask the bank about all the features of the grace period calculation (mentioned above).
- Inquire about the cost of annual maintenance of the card, and decide whether you need the benefits offered by the bank, for example, for $100 per year. If you need the credit card for an urgent one-time purchase, it is better to choose the one for which you will have to pay only $10. The annual fee is deducted from your card balance at the first transaction and is included in the total used to calculate your debt.
- When making out a card, you must carefully read every line of the contract, learn about all the mandatory payments, and ask questions to an employee of the bank. Be sure to ask: If you do not use the credit card, what will happen? It is a mistake to think that in this case the debt is not formed: there are fees, annual service, payments for mobile banking, which accumulate, even if a person does not use the credit card. Ha small amounts of interest accrue and grow, the debt increases almost exponentially. Therefore, even if there is no longer a need for a credit card, you should contact the bank and close the card, and not put it in a far corner of the closet.
- If you suddenly need to withdraw cash in a hurry, you should use only reliable ATMs in large shopping centers, where there is video surveillance or guards are working. Today swindlers often install counterfeit ATMs or special card readers in the card-receiver. These devices can be noticed if you examine the cash dispenser carefully. If the card data or the card itself gets into the hands of fraudsters, unfortunately, the consequences will be sad.
- Do not give your PIN-code to anyone, not even to the bank’s staff. Do not keep it in the same place with the card (for example, in your wallet). Bring your card with you only when you need it. Every day you should not carry it in your wallet, so that, firstly, you do not accidentally lose it and leave it somewhere, and secondly, do not be tempted to make an unnecessary purchase.
Also, you should carefully study which transactions belong to the grace period, and which do not.
Finally, the most important question: how to properly repay a credit card? The answer is one and very simple: in time. Usually, a person who at least once misses the date of payment on the loan, with great difficulty returning to habitual mode without debts and huge interest. Therefore, before agreeing to the bank’s favorable offer, you need to learn as much as possible about how to pay your credit card.