Getting Credit Card: Considering the incessant advancement in contemporary trend, it is pertinent one adjusts to fit in. it is apparent that the world is gradually going ‘cash-less’. As almost every now is being ordered or paid for online.
With the dawn of this comes the dawn of the uprising of credit card. People tend to depend on credit cards for a lot of things. The question however is; should you get a credit card?
In getting a credit card, probably you should strive to know why you need it. In other words, why are you getting it; what is the reason for getting it? Perhaps, do you even know what it is?
What is a Credit Card?
It is a thin rectangular slab of plastic issued by a financial company. It allows card holders borrow funds with which to pay for goods and services.
Credit cards impose the condition that card holders pay back the borrowed money. They also pay interest, as well as any additional agreed-upon charges.
It is important you also know that there are different types of credit cards.
Below are some types;
Balance Transfer Card
While getting a credit card, please note that this card used to cut interest on your existing debts. With a balance transfer credit card you move balances you have accumulated on other credit cards over and enjoy 0% interest for a set period.
This is usually for over a year but in many cases two. It is not completely free; as there is a balance transfer fee to pay when you initially move the money.
This is usually 2%-3% but keep an eye on it; some of the longer balance transfer deals have higher balance transfer fees.
This is the simplest of all the credit card types. Always keep in mind that it is the card for cheap shopping.
With a purchase card you will get a 0% interest period for several months. Also, this allows you to spend without accruing any interest even if you do not pay back your balance in full each month.
This is the card to use if you want to spend a lot of money and not immediately pay it back. But clear the balance before the 0% period runs out. This is because of the standard rate on these cards is high.
Cash Back Card
This is another important card to be aware of. If you clear your credit card balance every month, and have no plans to build up any debt, card is a good option.
It rewards your good spending habits by giving you a percentage of your spending back in the form of cash. Typically, you get 1%-5% cash back.
However, it tends to have high interest rates. It is only worth using if you are going to pay back your balance in full each month before interest charges kick in.
An alternative option for people who clear their balance each month is a rewards credit card.
Rather than paying you back with cash these cards offer various forms of rewards points in return for using them.
This is the credit card you get offered in various stores. It often has enticing introductory offers. The offers such as 10% off your shop that day or extra discounts on sale items.
The big drawback is the extortionate rate of interest. So, in general, you may want to avoid store cards like the plague when getting credit card.
With this type you can donate to charity with no effort while you shop. It works in a similar way to a cash back card.
As you spend money with the card you earn a percentage back, the percentage goes to charity.
Overseas Spending Card
Always think of when you will be traveling abroad. With an overseas spending credit card your abroad fees are much lower, or non-existent.
This makes them the cheapest way to spend when you are on your holidays. You can read more about the best cards for overseas spending here.
Why you Need it
It important to state that, at its basic level, a credit card helps in many forms of payment. However, it offers convenience and benefits in comparison to other forms of payment.
Typically, it offers greater security than many other forms of payment. Many credit cards allow you to earn valuable rewards in the form of cash back, miles or points.
It offers you helpful benefits, such as extended warranties, purchase protection and car rental insurance, to name a few.
Below are other reasons you need a credit card;
1. Free Borrowing
One of the reasons for getting a credit card is that there is no cheaper way to borrow than with it. You can borrow interest-free for well over a year with a credit card that offers 0% on purchases.
2. Earn free Money
Many credit cards reward you for using them. This can be either with money or points. You can use this point to buy anything from a shop.
3. Helps you Build a Good Credit Report
A good credit report will help you buy a house, a car and get you the best interest rates on both. Using your card sensibly is the best way to build a credit record or rehabilitate a bad one.
4. Free Insurance
Some cards come with free purchase protection for a short period after you buy. This means that if the item you bought is lost or stolen within a set time you get your money back.
5. Protect your Money
Also, it helps you save money. If you lose your wallet full of cash the chances are you will never see that money again. If you lose your credit card, provided you were careful, you will not be liable for money spent on it after you lost it.
Just make sure you report the loss swiftly and are always careful with your pin. If your credit card company can prove you were negligent they will not pay up.
6. It is the only Way to Pay
It necessary you know that some companies still insist on a credit card when taking payment. This is because with it they get greater assurance that they can recoup any additional costs you run up.
Factors against Getting a Credit Card
Despite all the advantages of having a credit card, there are factors against getting a credit card.
Accumulation of Debt
Credit card users have the potential to accumulate too much debt. This happens if their accounts are not managed responsibly.
Your card accounts can also mean fees. For example, if you carry a balance month-over-month, you may be charged interest on your purchases according to the credit card’s APR.
Most cards charge a cash advance fee. Sometimes, it is typically greater than what you might pay when using an ATM card to access cash.
You will also be charged interest according to the accounts cash advance APR. You can also be charged a late fee if you fail to make your payments on time each month.
However, checks and some debit cards can also have their own costs, such as overdraft fees.
Your Credit can be Hurt
Finally, credit cards have the potential to hurt your credit when they are not managed responsibly. For instance, if you incur too much debt, or make your payments late, your credit score will suffer. This is not a risk that you take when using cash and debit.
In a Nutshell
In a nutshell, please note that credit cards are best enjoyed by those who are disciplined. It is enjoyed by those who can remain cognizant of their ability to pay the monthly bill by the due date.
If you already know how to use it responsibly, then you should do this. Shift as many of your purchases as possible to your credit card. Do not use your debit card for anything other than ATM access.