Credit Cards - an Introduction

A Credit Article Contributed by Nithya K

Credit Cards - an Introduction

Before going deeper into the intricacies of credit cards and their types etc, let us first understand what are credit cards and how they differ from normal debit cards. A credit card is a plastic card that allows you to buy things even though you may not have the money to pay for it right away. The credit card company lets you spend up to a pre-agreed amount and then makes additional money available to you as you slowly pay off the amount you spent.

You must pay at least a minimum amount by the due date, generally once every month. You need to pay a finance charge or an interest on the amount you fail to pay by the stipulated due date.

Credit Cards - Risks

While these plastic cards can be really useful, but they can also be very risky. Even people who are usually good with their money and wealth management, end up getting into trouble with credit cards. The main problem is that people who use credit cards, too often fail to look at the accruing debts, and let this grow, until it takes a dangerous figure. Then they can pay back only small amounts at a time. This tricky behavior ends up costing these people a lot of money in finance and extra charges.

Credit card debt can add up real fast, if left uncurbed. For example, you have charged a total of $1, 500 on your credit card; Many credit cards have high interest rates like 19%, if your minimum payment each month is $30, it would take you more than 25 years to pay off your debt! Just think about that. Even in a worse case situation, you would end up paying a total of $6, 000 even though you borrowed only $1, 500!

Credit Cards - Benefits

A credit card makes it very easy to buy something now and pay later. It is much safer to use a credit card than to carry cash around. If you lose your credit card, somehow, 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 very convenient. You can use them to make hotel reservations, car rental reservations, other reservations, etc. You can buy items over the phone or online using the Internet.

Almost all online shopping sites like Amazon and EBay accept credit cards as a mode of payment. You can also use your credit card to buy any emergency medicines. If say, you car breaks down, you can use your credit card to cover the expenses. It comes handy when you need cash urgently, even when you don't know anybody to borrow money from; and cover any unexpected expenses. A Credit card is a good investment but should be used sparingly.

Using a credit card gives you a credit history. By entering your credit card payments and purchases in your credit report, you get a lot of mileage in getting home loans and other credit loans. Go for a credit card now!