Credit cards are a convenient way of paying for goods and services. Instead of scrambling for cash, cardholders can hand merchants a card that they received because they have shown they can pay back a temporary loan. The cards include a line of credit that ranges from a few hundred dollars to tens of thousands of dollars. Cardholders using the credit pay interest on what they owe unless they pay off the balance within a grace period.
Most Significant Feature
A credit card's most important feature is its interest rate. "The Consumer Reports Money Book" advises cardholders that "the finance charges should be your first consideration" in deciding what card to accept. The book says that only 40 percent of cardholders make decisions based on interest rates. It advises people to shop around by reading financial publications and newspapers.
Other Features
Other features of credit cards include annual fees, grace periods, cash advances and fringe benefits. Annual fees range from $15 to $50, reports "The Money Book," which warns that cards with low fees often have high interest rates. Grace periods are generally less than 30 days. Cash advances from automated-teller machines often have higher interest rates than purchases. Fringe benefits may include auto insurance for rental cars and discounts on purchases.
Benefits
Credit cards are accepted by merchants throughout the world. MasterCard and Visa are the most popular. They allow people to pay for transactions in person, by telephone and via the Internet. Consequently, credit cards can save time and money by allowing people to shop without traveling. Cardholders can avoid waiting on lines, going from store to store looking for what they want, paying for gas and driving in traffic.
Warning
The convenience of credit cards has a downside--debt. "Purchasing an item with a piece of plastic does not give buyers pause, as it might if they had to use actual cash," notes "The Money Book." The result of these decisions is often financially dangerous. According to "The Money Book," MasterCard alone loses half a billion dollars annually because its cardholders can't afford to pay their bills, and many of these people have to file for bankruptcy.
Tips
"The Money Book" recommends that people who have a lot of credit-card debt seek a bank loan instead of borrowing more money from their credit card company. A bank loan can enable people to pay down their credit-card debt and save a lot of money because "virtually all credit card (interest) rates are higher than the rates charged for bank loans," says "The Money Book." Many people do not like asking a family member or friend for a loan, but doing so also can save you a lot of money.
References
- The Consumer Reports Money Book; the editors of "Consumer Reports"; 1997
- Guide to Personal Finance: A Lifetime Program of Money Management; Richard J. Stillman; 1975
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