Credit Cards – Everything You Need to Know
This article presents a primer that contains important information you need to know about credit cards and how to use them.
A credit card, as is suggestive of its name, is a card that allows a cardholder to buy goods and services on a credit basis without using cash. It is a very convenient payment method that is ideal for use as a long-term credit service provided by a bank or credit card company. Today, use of credit cards is so prevalent in Singapore as well. Credit cards can be used locally for most purchases and overseas in establishment that accept the brand of your card. In order to make a purchase, the card must be swiped onto a credit card slot and a sales slip must be signed by the card owner. Credit cards can also be used to make purchases online through secure payment technology provided by online companies. The total usage for the month is consolidated by the credit card company, and the total bill is charged to you through a monthly billing statement.
The Monthly Statement
The monthly statement provides you with a list of all the purchases you have made using your credit card. It contains the following information:
- statement date
- the total amount charged for the month
- your outstanding balance (which is the total amount you owe your credit card company)
- due date for payment
- minimum payment due (usually 3% – 5% of the outstanding balance) – this is the minimum you have to pay in case you can’t pay the entire balance in full
- interest charge – which is interest charged when your outstanding balance in the previous month was not paid in full (subject to bank determined interest rate)
- late payment charge, if applicable
- transactions made in other currencies
Using a credit card is much like borrowing money from your credit card company. This goes without saying that use the card must go with certain responsibility. When you accept the terms and conditions that go with the credit card, you are involving yourself in a binding contract with the card issuer. It is important that you understand conditions of usage including interest rates or finance charges, cash advance charges, liability for loss or stolen cards, late payment charges, membership fees, and so on. Although most banks offer comparable interests rates, charges and fees, card issuers may charge differently. Among fees and charges you have to be aware of are as follows:
Interest charges or
finance charges – as mentioned earlier, this is the interest charged to your
outstanding balance from the previous month. Interest rates range from 2.5% to
up to 4.5% per month. It is important that you know how interest rates are
computed as this can potentially go haywire in large sums if your balances are
not paid over a long period of time.
Cash advance fee – this fee is charged to you if you use the card to obtain cash advance. This fee varies from 3% to up to 6% of the cash you advanced and may be subject to a minimum amount. Be aware though that this fee is in addition to possible interest charges.
Annual Membership fee – this is a fixed amount fee you have to pay yearly for use of your card
Late Payment charge – this fee is charged if you were unable to pay the minimum sum before the statement due date
Using Your Credit Card
Some say that credit cards are the root of evil. Unwise use of credit cards has led to many detrimental financial effects on many people. However, if credit cards are used wisely, then it actually offer more help than harm. Here are tips to help use your credit card wisely:
- Buy only what you can afford. Even if you are not paying in cash, you are still spending money. Never lose track of how much exactly you have spent, and don’t spend more than your potential to earn.
- Pay your bills on time to avoid additional fees and charges. If you can afford paying the outstanding balance, then do so. Racking up on finance charges can endanger your finances as interest is compounded month after month.
- Do not collect credit cards. Limit your cards based on your needs and your ability to pay.
- Do not spend right up to your credit limit. It is a good idea to save some for emergency purposes.
One All Too Common
Problem with Credit Cards
What if you raked on those interest month by month and find yourself in more debt than you can handle? Not only can credit card non-payment problems affect your finances, it can affect your credit standing as well (which can have a marked effect if for instance, you apply for a loan). It is then important to manage your debt as early as possible. Credit card companies are usually open for compromise, so you can contact your creditors and request for more manageable payment schemes. You may also take advantage of debt consolidation services at lower interest rates available in many banks and companies. If you rake on debt higher than $10,000, you can opt to file for bankruptcy, although this can lead to serious drawbacks in your credit report. Protect Yourself from Credit Card Fraud
Another potential problem that credit card holders must know about is credit card fraud. This is when your card is used for transactions you don’t authorize or don’t even know about. These cases are more prevalent in online transactions, and must be avoided at all costs. To avoid fraud, make sure to keep your credit card safe, keep a record of all your cards, and avoid online purchases from unreliable websites. When using your card for physical transactions, be aware of ked0 List Tab