WHAT IS A CREDIT CARD?

WHAT IS A CREDIT CARD?


WHAT IS A CREDIT CARD


Friends it was a decade back ( my college days) when I first heard of credit cards and believe me I did not know what were they? , how to use them? , until I started using one.

So to all the folks out there, who still don't know what are credit cards ? What is the difference between credit cards n debit cards? What are benefits of having a credit card ? And when credit cards can pose as a threat and ways to avoid them? Then this article is for you.

Before we get into WHAT IS A CREDIT CARD?  let's understand 

* WHAT IS THE DIFFERENCE BETWEEN CREDIT CARDS AND DEBIT CARDS?

Friends before getting into their differences , let me ask you what is the difference between, postpaid mobile plans n prepaid mobile plans?


Come on finmaaster , in post paid plans we can call , text , use internet as much our plans allows us , and the bill payment has to be made after one month, and in prepaid plans we will have to recharge first and can use it till our balance exhausts. ( IM SURE THIS WOULD BE YOUR ANSWER)

FRIENDS , so just think credit cards as your postpaid mobile plan and debit cards as your prepaid mobile plan.

WHAT IS A CREDIT CARD?


1. ( credit + card) Credit card is an instrument through which a credit ( loan ), is given to the card holder by the credit card issuing bank.

2. It has nothing to do with your bank balance. Hence the amount you spend through your credit card is not instantly deducted from your bank account.

3. It is issued to a person by considering his / her's income .

ie . If a person is salaried, then considering his / her's
salary income. If a person is into business , then considering his / her's business income.

4. Credit card issuing bank fixes a monthly limit , on your card again on the basis of your income.

Say for eg . You have a credit card n the monthly limit as fixed by your bank is 50k , then you can spend / shop for whole month upto 50k .

5. Most of the credit card comes with annual charges .

DEBIT CARDS

1. DEBIT CARD is an instrument that you get when you open an account in bank. You can use this card to withdraw money from ATM or to shop online / offline.

2. It is linked to one's bank account. Hence the amount you spend through your debit card , gets instantly deducted from your bank account.

3. Everyone who opens an account in the bank can get debit card , irrespective of his / her's income.

4. You can spend / shop till the bank balance gets exhausted. So here your bank balance is your spending limit.

5. Bank deductes a small amount annually for debit cards.

* ADVANTAGES OF CREDIT CARDS.

1. The biggest advantage of CC is that , you get almost 50 days of INTEREST FREE MONEY . How ? Let's see

for eg suppose your billing cycle for your CC is from first to last of every month , say from 1st January to 31st January and you happened to spent 50k ( monthly limit) on 1st Jan itself , then your bill would be generated on 31 st Jan and you need to pay that amount by 20 th February ( due date ) only and that too without any interest. If the same amount was spent via your DC then that amount would have been deducted on 1st January from your bank account.

So friends we saw here that with the help of CC you completed your requirements , with the convenience to pay at a later date that too without paying any interest. And your bank balance earned you interest for 50 days. So it could be said , you used banks money freely for 50 days.

2. It helps to build good FINANCIAL DISCIPLINE , as one learns to repay the loan amount within stipulated time.

3. It improves your CREDIT SCORE , because every month you are paying your CC Bill's. So in future if you wish to take a loan ( for first time ) for your home / business then your chances of getting it increases , as the loan giving bank checks your previous payment history , before giving loans to you.

4. Many online sites offer you CASBACKS N DISCOUNTS when you shop with your CC . Also when you shop with your CC you can avail EMI FACILITIES from these sites , say you want to buy a flagship mobile phone but don't have money to pay at once , at these times CC come to your rescue.

5. We all know EMERGENCIES come uninvited , during those times CC come handy.

for eg , someone in your family is hospitalized and you don't have enough cash in your bank account , in this case you can use your credit card and be at ease , as you know your salary is going to come in few days n you can pay your CC Bill's once it comes.

* DISADVANTAGES OF CREDIT CARDS.

1. We saw above how banks give you interest free money for almost 50 days , but if you are unable to pay that amount within 50 days , then from 51st day banks will start charging interest on that amount. This INTEREST RATE IS VERY HIGH (36 % to 40 %) .

2. If you are an IMPULSIVE BUYER then , there are chances that you may end up OVERSPENDING, because you know there is balance in your CC and you need to pay it only next month.

3. If you are spending through your CC , and you are unable to pay the amount by due date then your  CREDIT SCORE gets affected.

* SOME USEFUL TIPS.

1. Always try to schedule your shopping at the beginning of your billing cycle. In this way you are going to get 50 days to repay that amount.

2.  Withdraw money from ATM  using your CC only if you are in that urgent need of cash ,  because you would be charged very heavily for your transactions.

3. Always pay your CC Bill's before due date.

4. While paying Bill's of your CC , banks offer you option to pay minimum balance , never opt it instead always make full payment.

5. Always spend that amount which you can repay easily before due date.

* SO SHOULD YOU BUY CREDIT CARDS ?

To conclude , I can say that if used wisely CC has got lots of benefits , but if someone doesn't have financial discipline of repaying debts on time , then I would say just stay away from it.


Previous
Next Post »

5 comments

Click here for comments
September 23, 2018 at 9:40 PM × This comment has been removed by a blog administrator.
avatar
Unknown
admin
September 26, 2018 at 10:12 PM × This comment has been removed by a blog administrator.
avatar
Unknown
admin
October 2, 2018 at 12:11 AM × This comment has been removed by a blog administrator.
avatar
Unknown
admin
October 5, 2018 at 1:16 PM × This comment has been removed by a blog administrator.
avatar
October 12, 2018 at 7:23 PM × This comment has been removed by a blog administrator.
avatar