Everybody loves good financial freedom for themselves that provides great opportunities to shape their future. Speaking of which, people follow great methods and strategies to make a smart living. This calls for the effective use of certain tools that makes it simpler than ever. Credit cards are one of such modern financial tool of recent times that has made quite an impact in the lives of people on a regular basis. One might even say that it has become an inevitable factor. However, like any of the modern scientific advancements, these credit cards also come with their pros and cons. This article will provide the best information about the credit card facts for easy and effective understanding.
What is a Credit Card?
Let us get on with the basics first; a credit card is a tool that helps people to may payments without actually owning a certain amount of money. However one must repay it in later stages but this proves helpful in terms of emergency conditions. It is nothing more than a short-term loan with a grace period of 30 days. So, many tend to prefer them to handle their instant pay dues. These credit cards are similar to that of the debit cards. They are issued by the banking organizations to ease the financial transactions and the needs of their customers.
But remember one must settle the complete balance on or before the due date. Failing to do so will result in additional interest.
Why Do We Need It?
Like said before, credit cards provide to be a lifesaver in terms of emergency needs. It could be your medical bills or quick purchases, credit cards will save your day. The most important benefit of a credit card is that it helps you build a good credit which paves the way for getting easy future loans. With growing personal and the business needs these credit cards are the best way to get loans.
Credit cards also save your money; many provide cash back offers and the travel rewards that could save considerable percent of the total money you spent on them.
Secured Vs Unsecured Credit Cards
Credit cards fall into two major types, secured and the unsecured cards. What makes them so different and what do we have to pay attention to these details?
Secured credit cards involve cash deposits similar to that of the prepaid cards expect that deposited money will not be spent. This deposited money acts as a collateral when an individual pays off his balance within the due date, he/she will get the complete deposited money back.
In the case of the unsecured credit cards, it does not involve any cash deposits. So there is no collateral to back you up so the issuers would like you to add your friends or family member’s credit account in order to use it. So if you are a beginner looking to build up your credit score, it is better to start with the secured ones.
Credits cards are the door to instant free loans. However, the bill has to be paid within the provided grace time period. It usually ranges from 21 to 25 days and the user could enjoy making purchases (Interest-free) within this particular period of time.
Calculating the Interest
It is easy for people to miss out the due bills and it happens all the time. In the case of the credit cards, it results in additional interest. So one must get familiarized with these details to know what they are facing up against.
How does one calculate it and what are its factors?
The interest rate depends on the balance amount on the card after the due date. It is advisable to pay the due amounts regularly each month to avoid such additional interest. Also, remember that acquiring an advance payment may elevate the rate of interest and cannot enjoy the benefits of the grace period.
Minimum Payment Criteria
The minimum amount refers to the smallest amount of money that one must pay regularly each month that avoids the additional late payment fee.
However, it becomes more necessary to calculate minimum payments to proceed accordingly. There are various methods involved in calculating the minimum payments. They are given as follows
Here it depends on the total balance. Usually, it ranges from 1 to 3% of the total balance and one must pay this fraction of money to avoid further penalties.
Percentage + Interest + Fees Method:
Here the payment involves three important factors, the actual balance, interest, and the fees. Here the certain percentage of the actual balance and their corresponding interest rate and the late payment fees are summed to provide the “total” value of the minimum payment.
Credit Card Works Like a Charm!
Owning credit cards would prove more helpful in managing all of your financial needs with an ease. These credit cards are also one of the best ways to build one’s credit score without involving any hassles. But remember all of this is possible only when credit cards are used in the right way. Failing to do so will affect your credit score badly and nobody wants that. This could be more easily avoided when one could familiarize his or herself with all of the above-mentioned credit card facts before making the first move. This best suits people especially who are looking to choose their first credit cards.
Vivek is an Outreach specialist for Blogs. He is also a writing enthusiast fond of healthy and happy living. He believes Knowledge gets better when shared. So he founded The Mindful Bytes as a platform for people who love to read and write anything that has to do with Health, Tech, Business, Finance, and Lifestyle.