Credit cards basically allow you to transact by utilizing credit from the bank with certain periods and limits. This limit is determined by the bank based on the bank’s estimation of your ability to pay.
Generally the time period given is one month, so you need to pay the bill at the end of the month. Many people mistakenly use credit cards without thinking about payment, and this is often the core of the problem of credit cards.
Credit cards are a tool for short-term credit that you must pay later
Which does not mean the bank will pay for your transaction. If you cannot afford to pay on time, you will be charged additional fees or penalties.
In general, the way credit cards work is as follows:
- To be able to use a credit card in a transaction, you must submit your credit card to the seller.
- The validation process occurs when the card is inputted or swiped, and rejection can occur if:
- You have not activated a credit card
- You exceed your credit card limit
- You are late in making payments
- There is detention of funds
- Retailer’s internet connection is hampered
- Every time you do stages 1 and 2, you will increase the number of debits on your credit card.
- Every month, a bill will appear that covers all of your transactions in the relevant month. Ideally, you are expected to pay in full before the deadline because if not, you will be fined due to late payments.
- Credit History. The most important part of using a credit card is that if you make a payment on time and avoid high credit balances, the value of your credit history will be good. This credit history shows your financial responsibility, which will make it easier for you to borrow money or make mortgages or motorized vehicles later.
Credit cards can be useful for you, but they can also be dangerous for your finances. In order to maximize the benefits, you must be wise in using it. The main advantage of credit cards is the ease of transactions because with a credit card, you do not need to carry a bundle of cash that fills your wallet. But in addition to convenience, there are several big credit card advantages, including:
- Easy to carry and use
- Allow transactions now and pay later
- There are price discounts or additional bonuses
- Helps you build a credit history
Credit Card Losses
As mentioned earlier, credit cards can also harm your finances if they are not used wisely and smartly. Some credit card losses include:
- High interest. If you can’t afford to pay your credit card bills on time, then you will be fined with no small interest.
- Possibly stuck in debt. If you miss repetitive transaction payments, chances are that you will be in a debt that is endless, with fines increasing.
- There are additional costs. The use of credit cards is generally subject to additional fees such as annual credit card fees or stamp fees.
- Detention of funds or deposits. If you use a credit card in a hotel transaction, there is a possibility that a number of funds will be held as a deposit that will be deducted if you consume a Mini Bar or damage hotel facilities.
- High fees abroad. Generally credit cards set foreign exchange conversions that are high enough and can make your credit card bills swell when used abroad.
Use Credit Cards Wisely and Smartly
Credit cards can be useful and not harmful if you use them wisely and smartly. Avoid using credit cards beyond your ability to avoid endless debt bondage. Use a credit card as intended, which facilitates transactions by allowing short-term loans without interest from the bank.
Do you know the benefits of other credit cards? Leave your comment below . If you have questions, please submit your question in the column below. Our Financial Planner is ready to help you, thank you.