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Credit Card |
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WHAT IS A
CREDIT CARD?
A credit card allows you to buy things even though you might not
have the money to pay for it right away. The company that gave
you the card lets you spend up to an agreed upon dollar amount
and then makes additional money available to you as you pay off
what you've spent. You must pay at least a minimum amount by the
due date, generally once every month. You will pay a finance
charge or interest on any amount you do not pay by the due date.
While they can be very useful, credit cards can also be risky.
Even people who are usually good with their money get into
trouble with credit cards. The problem is that people use their
credit cards too often and let their debt add up. Then they can
only pay back small amounts at a time. This ends up costing a
lot of money in finance charges.
BENEFITS OF CREDIT CARDS
A credit card makes it easy to buy something now and pay for it
later. It's much safer to use a credit card than to carry around
cash. If you lose your credit card, you can ask your credit card
company to cancel your card, and no one else can use it. But if
you lose cash, your money is gone.
Credit cards are also convenient. You can use them to make
hotel, car rental and other reservations. You can buy items over
the phone or online. You can also use credit cards for
emergencies, like unexpected car repairs, when you don't have
the cash to cover the expenses.
Finally, using a credit card gives you a credit history, which
helps to get home loans and other credit in the future.
CREDIT
CARDS: THE GOOD, BAD, & UGLY
The Good: A credit card is
convenient for making purchases. It is also the best way to
create a credit history for you, and this is necessary to do
things like buy a home.
The Bad: It is very easy to
lose control of your spending habits if you rely on credit cards
too often, or if you use them for very expensive purchases.
The Ugly: Once you owe a lot
of money to credit card companies it can take most of your life
to pay them off, and you can damage your credit rating in the
process.
COSTS
OF CREDIT CARDS
All credit cards have finance charges for not paying your
balance in full each month, but you could save a lot of money by
shopping around for the credit card that offers you the best
terms. Key credit card terms to look at are the annual
percentage rate (APR), annual fee, grace period, and late
payment charges.
Shop for a card with a grace period that gives you enough time
to pay your bills on time without charging you interest. Credit
cards with no grace period start charging you fees as soon as
you buy something on your credit card.
Where to get a credit card
Your mail is probably full of credit card offers from national
companies. Most local banks and Community Development Credit
Unions (CDCUs) offer credit cards as well. The fees, charges and
benefits for credit cards vary among different companies. When
you're choosing a card, shop around. CDCUs often offer the best
rates and lowest fees, since they are not trying to make a
profit like credit card companies are.
Some large department stores also offer credit cards that only
can be used in their stores. Usually, when you apply for a
store credit card, you get a one-time discount on your
purchase that day. But these credit cards have limited uses and
often carry high finance charges.
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