Everyone knows that little rectangular piece of plastic that several individuals carry around in their purse or wallet. This is what we call a credit card, which is issued by a financial institution, most commonly banks, for consumers to purchase goods or services at the initial expense of the institution. This I like to call short term borrowing.
Do not get this confused with the other rectangular card called a debit card. They are two different types of spending, either spending your own money (debit) or spending the banks’ money (credit). The word credit merely means providing the resources or money to another party without immediate payment.
As Jamaicans, we can relate as many shops or wholesales offer regular customers the benefit of ‘Trust’, where they take the goods and pay at a later date. It is the same concept, just that a credit card allows you to purchase an item or service (the retailer gets their funds) but you pay the bank at a later date.
The phrase short term borrowing is used because minimum payments are due every month end at a specific date to lower the principal and interest and if those payments are not made, then the card is blocked from usage.
Based on a 2016 survey, over 67 percent of persons over the age of 65 was in possession of a credit card and in Q2 2017, there was about USD$ 780 Billion in credit card debt in the United States.
Credit cards can be a blessing, but how? When used responsibly and how they are slated to be used, there can be numerous advantages. Firstly, when making a reservation, for example at a hotel, a credit card is needed to either hold the reservation or be on file in case there has been any damage during your stay. Secondly, they are amazing for emergencies, when you don’t have ready cash to deal with medical bills, buying food etc.
Additionally, before the introduction of debit cards, credit cards were the only source available to allow online banking which is deemed more convenient to consumers and also provides security against fraud. Some banks ever offer bonuses, giving cash back and miles for travelling. However, one of the main uses of a credit card is to be able to have good credit history so that it is easier to get loans and even lower interest rates.
However! The Curse! – Most owners of credit cards do not use them properly or responsibly. What persons make the mistake of is making their credit limit higher than what they can afford or even higher than their monthly paycheck, which makes it difficult to repay when in debt and causes financial distress. Persons tend to even have 3 or 4 credit cards which may result in more debt and then is only able to make the minimum payment, fall short of it or even pay late. This can cause a problem.
To avoid getting bad credit and decreasing your chances of getting a loan, being able to rent or even getting employed, be smart about your credit cards, make on time payments, more than the minimum if possible, stay within your limit and have self-control.
If you generally cannot pay for an item or service that it is not an emergency or need, do not charge your credit card. If you know you have no self-control, do not get a credit card. Do not get another credit card if you don’t have to and always try to pay your bill on time.
Do not fall for the temptation of credit cards, they are there to give benefits not put you in debt. It is important to live within your means instead of finding a different source of income by loan.
Be smart and have good credit or stay away!
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