Why Is Your Bank Manager NOT Telling You The Truth About Your Credit Card?
Why Credit Cards Are Not Your Money?
Most people think of credit cards as another form of exchanging cash to acquire goods and services. What most people don’t understand is that when they use credit cards they use debt, not cash. Since the early part of 2,000, many major banks deceptively advertised credit cards as a form of “cash”. This oversupply of fake cash contributed to the financial bubble and the recession the world experienced a few years later. However, as we will see below you can greatly benefit from the use of credit cards, as long as you know how to use them.
Advantages of Using Credit Cards Online
- Safety. Credit cards are comparatively safer than debit cards and they offer enhanced protection against fraud. They also provide for more chances of a course of action in case fraud charges are made. For example, if you make a purchase and the seller does not send your product, you can discuss and dispute the particular transaction. If a transaction is disputed you are likely to get it reversed.
- Warranty. Most major credit card companies will offer their customers extended warranties on the goods and services purchased through credit cards.
- Reward Points. As an incentive to gain customers, many credit card companies offer reward cards. These are points you gain when you use your card and can be used for free gifts, flights, vacations, etc. Such reward points are not available with debit cards.
Disadvantages of Using Credit Cards Online
Even though credit cards are so popular, there are many serious drawbacks and hidden costs associated with them.
- Interest. Every purchase made with a credit card will charge interest. This means that you might end up paying much more than the original price of the product you purchased using the credit card. Making a payment with cash or the debit card would’ve been a cheaper option.
- Extra charges. If you are unable to pay your credit card bill on time, you will have to pay extra charges in the form of late fees. Also, many of these cards have annual fees.
- You never pay them off. If all you do is pay the minimum payment, you will be paying interest to the bank for ever. This is why the credit cards were invented and this is how the banks profit massively from them. For example, if you borrow $1,000 and keep paying the minimum monthly payment, which is the interest and fees, and never pay the capital, you will be paying the bank for the rest of your life.
- Infinite interest. This is the biggest and less known disadvantage of using credit cards. Most people misunderstand the meaning of interest related to a loan or a credit card. When banks tell you that your interest rate is 20%, this is not the real interest you pay. 20% is the annual interest rate and not the total interest on the amount borrowed.
Let us use the above example. You borrow $1000 and pay 20% interest every year. This means that you will be paying the bank $200 over a year, every year, year after year, provided that the annual interest rate stays the same. If you don’t take $1,000 out of your pocket to pay this credit card off, you will be paying the annual interest for ever and ever.
The Secret of Using A Credit Card To Your Advantage
- NEVER borrow more than you can pay at the end of the month.
- ALWAYS pay the whole amount you borrowed at the end of the month and do not let the bank charge you interest.
- Ideally, use the credit card to acquire investments, things that will increase your monthly income or assets that will increase in value. Avoid using credit cards to buy consumables and liabilities.