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Credit
Cards
WHAT
IS A CREDIT CARD?
A credit card allows you to buy things even though you
might not have the money to pay for it right away. The
company that gave you the card lets you spend up to an
agreed upon dollar amount and then makes additional
money available to you as you pay off what you've
spent. You must pay at least a minimum amount by the
due date, generally once every month. You will pay a
finance charge or interest on any amount you do not
pay by the due date.
While they can be very useful, credit cards can also
be risky. Even people who are usually good with their
money get into trouble with credit cards. The problem
is that people use their credit cards too often and
let their debt add up. Then they can only pay back
small amounts at a time. This ends up costing a lot of
money in finance charges.
BENEFITS
OF CREDIT CARDS
A credit card makes it easy to buy something now and
pay for it later. It's much safer to use a credit card
than to carry around cash. If you lose your credit
card, you can ask your credit card company to cancel
your card, and no one else can use it. But if you lose
cash, your money is gone.
Credit cards are also convenient. You can use them to
make hotel, car rental and other reservations. You can
buy items over the phone or online. You can also use
credit cards for emergencies, like unexpected car
repairs, when you don't have the cash to cover the
expenses.
Finally, using a credit card gives you a credit
history, which helps to get home loans and other
credit in the future.
CREDIT
CARDS: THE GOOD, BAD, & UGLY
The Good: A credit
card is convenient for making purchases. It is also
the best way to create a credit history for you, and
this is necessary to do things like buy a home.
The Bad: It is
very easy to lose control of your spending habits if
you rely on credit cards too often, or if you use them
for very expensive purchases.
The Ugly: Once you
owe a lot of money to credit card companies it can
take most of your life to pay them off, and you can
damage your credit rating in the process.
COSTS
OF CREDIT CARDS
All credit cards have finance charges for not paying
your balance in full each month, but you could save a
lot of money by shopping around for the credit card
that offers you the best terms. Key credit card terms
to look at are the annual percentage rate (APR),
annual fee, grace period, and late payment charges.
Shop for a card with a grace period that gives you
enough time to pay your bills on time without charging
you interest. Credit cards with no grace period start
charging you fees as soon as you buy something on your
credit card.
Where
to get a credit card
Your mail is
probably full of credit card offers from national
companies. Most local banks and Community Development
Credit Unions (CDCUs) offer credit cards as well. The
fees, charges and benefits for credit cards vary among
different companies. When you're choosing a card, shop
around. CDCUs often offer the best rates and lowest
fees, since they are not trying to make a profit like
credit card companies are.
Some large department stores also offer credit cards
that only can be used in their stores. Usually, when
you apply for a store credit card, you get a
one-time discount on your purchase that day. But these
credit cards have limited uses and often carry high
finance charges.
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