Credit Card Basics and Savings Tips
by Robert Jonsonn
Our society depends so much on credit, setting a monthly budget just doesn't seem to matter anymore. Having the luxury of an easy and hassle-free spending alternative makes it too easy to buy the things we want, without saving for them. Credit cards can make shopping easy. But hassle-free? No way.
Children often say that credit cards are a source of free money. It's charming, but we know better. For a tiny piece of plastic, the credit card sure wields a lot of power over most people in industrialized societies. It acts like a tiny bank loan in our pockets, and allows people to make impulse purchases without having the cash in hand. It makes buying a lot easier in the short term. Of course, the hard part involves paying back the "loan" before the interest begins compounding.
Today it is easier than ever to get approved for a credit card application. Most card suppliers continually mail advertisements and application forms to households. After mailing in the application, most people will receive a card in the mail in a short time. There will likely be a fairly conservative spending limit placed on the card at the beginning, though this can rise over time. You will be able to purchase goods or access cash from the supplier's "bank" up to your monthly spending limit.
The flipside of the plastic card has a magnetic strip which is encrypted with coded security and demographic information. The information held in the strip is transferred during a transaction to the retailer's machine to allow it to communicate with the card supplier and authorize your payment. Millions of retailers accept credit cards. You can also use the card for purchases over the telephone or on the Internet, depending on the merchant's ability to accept payment of this kind. Finally, credit cards can also be used at ATM cash machines to withdraw cash from your credit card account.
There are many credit card suppliers, but seven of them represent the bulk of the industry. VISA and MasterCard are the two dominant players, as well as American Express, Citi, Discover, Diners Club, and JCB. Don't be fooled by the fact that many banks or other organizations arrange partnerships with the big credit card suppliers to create branded cards that have the logo of both companies.
When you make a purchase in a physical store, you are generally asked to "swipe" the card by sliding the magnetic strip through a card strip reader. When you purchase online, you will be asked to provide your credit card details on the web site itself. Be certain to check for the secure lock image in the bottom right corner of your browser before you purchase online, as there are some unscrupulous operators online, as in all parts of life. Once your puchase is approved, your credit card supplier will mail you a bill for your purchase. You can either make a partial payment, or preferably, pay the full amount of your purchases for the previous month. If you do pay the bill in full, on time, you will not be charged interest.
Here's where credit cards can be difficult. If you opt for making a partial payment of simply meeting your minimum obligation, you will be charged interest. If you have made numerous purchases or used credit to buy expensive items, the interest can add up very quickly. This is how the credit card suppliers make their money. Late fees can also be charged, so be sure to make your payment on time.
Credit cards are convenient and useful for today's shopping environment. However, the ease of use can seem pretty small compared to the huge pain of paying off debts owed on credit cards. Interest rates are usually very high. So try to pay your balance off in full every month. You will gain the convenience, without the pain. There is nothing wrong with using cash for most purchases, either, so don't feel that a credit card is mandatory.
Author Robert Jonsonn is a columnist for various busy web magazines, on personal health care and consumer protection topics. Click here for other unique 'credit cards' articles.
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