Here’s what you need to know to get the most from your credit card
Most of us enjoy the convenience and benefits of credit cards from time to time. Provided we have good financial habits and use cards wisely, they can be a handy way to manage cash flow.
However, the potential for hard-to-manage credit card debt can be an issue for those with less than responsible financial habits. Here’s what you need to know to get the most from your credit card.
Understanding credit cards
A credit card represents a contract between the cardholder and the financial institution. The cardholder may use the institution’s funds to pay a merchant or withdraw cash, based on the assumption that the cardholder will repay the lender a minimum amount by a set time.
For this convenience, the institution generally charges interest on the funds used, unless the borrowed amount is paid in full by a certain date.
Credit cards work on a revolving account system, which means the cardholder can borrow any amount up to his or her limit and does not need to repay the full amount each period, and can have interest-free periods depending on the terms and conditions of the card.
The key figures to look for on any credit offer are:
- annual fees
How much should you pay to use this credit card? If you plan to use credit only in emergencies, consider a card with a low annual fee so you don’t have to pay too much for funds on standby. However, it is worth considering that cardholders often find great value with credit cards that offer rewards programs and insurances. The collective value of these card features may exceed the cost of the annual fee.
- interest rate
What is the cost of these funds? If you don’t pay off your borrowings every month, it pays to be aware of how much you’ll be charged in interest.
- payment terms
How long do you have before you need to make a repayment? Does the card offer interest-free periods for cardholders who have paid off their balances in full? To help you manage your cash flow, credit cards can provide you with various payment terms.
- credit limit
How much will the lender let you borrow at once? A lender will determine your maximum credit limit based on various factors including your income and living expenses.