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Essential Facts and Information Regarding Credit Cards

Millennial Pocket by Millennial Pocket
May 17, 2022
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Essential Facts and Information Regarding Credit Cards
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Credit cards have the potential to be extremely powerful financial-based tools for you and your family – as a whole; however, as with all financial-based products, these assets need to be used in a careful, cautious manner. Credit cards provide you with the freedom and flexibility of purchasing items of necessity now and paying for those items later, over time. You may use these cards in person, online, through mobile apps, and more. In this comprehensive guide, you will learn many essential facts and pertinent information regarding credit cards.

Woman Holding Credit Card

What is a Credit Card – Exactly?

A credit card is a specially-designed product that is created to represent a type of payment mechanism that is used to facilitate both consumer-based and commercial-based transactions such as purchases and advances in cash. It is typically used as a type of substitute for a check or cash. In most instances, it gives the user an unsecured line of credit that is revolving.

Each billing cycle – which is typically outlined as a specific number of days or a month – the borrower is obligated to pay part of the outstanding balance associated with the card. As the outstanding balance decreases, the amount of available credit increases.

The Physical Card

The physical card is thin and rectangular. The front includes a series of numbers. These represent the bank, account number, and the associated network.

The back of the card has a magnetic strip that is often referred to as the “magstripe”. This includes embedded information about the account.

There is a signature box. The information and details of these cards are constantly morphing in order to optimize the account holder’s security.

Examples of changes that have occurred and may be included on the card include a chip, biometric capabilities, and blink technology.

Choosing Credit Cards

The best strategy for maximizing the benefits associated with credit cards involve having a solid understanding of your finances and associated lifestyle and credit score. This means that you should consider what you need, the things that you want, your monthly income, and how much you spend and how this affects your overall financial status. You will need to become familiar with the terms associated with the credit card. The following outlines specific points that you need to know:

  • You should learn about the Annual Percentage Rate (APR). When evaluating the APR, determine if it is fixed or it is a variable APR.
  • It is imperative to become familiar with the fees associated with the overdraft limit, the annual cost (if any), and with being late on a payment.
  • It is essential that you know how much the credit limit is on the credit card account. This is the maximum amount that may be spent on the product.
  • There comes a time where interest will start accruing on the account. You should know how long the grace period is before this starts.
  • You will also want to familiarize yourself with any rewards associated with the credit card account – such as cash back rewards and any type of airline reward program where you build up mileage.

What is the Cost of Using Credit Cards?

If you have credit cards and do not pay the balance off each month, the interest will start to add up. This means that you will end up spending more than you originally planned to spend.

For example, if you purchase something for $1,000 and the credit card has an APR of 25%, with a minimum monthly payment amount of $40, it will take 36 months to pay off the purchase. Your total finance charge will be $427.22. That means that – instead of $1,000 – you will end up paying a total of $1,427.22! That is a significant amount in the difference.

Be very careful when using credit cards and always plan on paying more, in the end. For financial purposes, it is best to pay in cash when it is possible to do so.

Controlling Debt with Credit Cards

If you decide to get a credit card, it is important to set some basic rules for yourself so that the debt ratio does not overwhelm you.

One strategy is to make a rule to purchase one thing a month that costs less than $50.00. Then, make a point to pay that off each month so that you do not carry a balance that could result in high-interest charges. It is important to set goals related to payoffs for larger purchases.

The quicker that you pay off a credit card debt, the better. Not only will it reflect positively in your credit report, but you will actually SAVE money. Finally, try to avoid cash advances. These increase your balance, have larger fees, and will cost more to pay off.

Disputing Errors

Each month, you should carefully examine your statement for billing mistakes. While not common, they do happen. If you observe any type of error, you should report it to the credit card issuer immediately. Continue to make the payments associated with your accurate/undisputed charges. The card company should let you know when any disputed information is resolved. You should then review your statement to ensure that the errors were resolved.

Contact Us

If you are interested in obtaining credit, it is often best to consult with a bank – such as us here at Somerville Bank – about loans. Credit cards typically carry very high-interest rates, but it is possible to get a bank loan with a significantly lower interest rate. Additionally, there are many different types of loans to choose from. In addition to loans, we have professional financial advisors in employment here at Somerville Bank.

These professionals can assist you with numerous aspects of your financial life. Examples include budgeting, debit cards, mobile banking, loans, CDs, stocks, bonds, and more! If you are ready to take control of your financial affairs, we are willing to help you. To achieve the highest level of success and put your finances in order, do not hesitate any longer. Give us a call here at Somerville Bank or visit us at one of our many locations today: https://somervillebank.net/locations/

The post Essential Facts and Information Regarding Credit Cards appeared first on Somerville Bank.

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