A credit card is basically a piece of plastic that carries around some information about your account with a bank. When a credit card is used, it will check with the bank to determine if you have enough credit or money to withdraw before approving the transaction.
One term that is used for a credit card is ‘electronic money’; since you won’t need to actually carry around any cash with you when you have a credit card.
A credit card can be a great tool. However, if not used correctly, it can also be a harmful tool.
There are two types of credit cards, a secured credit card and an unsecured credit card.
Usually people have an unsecured credit card; which will basically give people the ability to purchase items up to the limit on the credit card.
This is the type of credit card that people will get into trouble with. Those that don’t use them correctly won’t pay the full balance on the credit card each month and will get charged a high interest rate for the remaining balance.
Those that don’t use credit cards properly will usually have multiple credit cards and max out each of the limits and are then not able to use them any longer. They will also only be making the minimum monthly payments, which is basically just the interest amount.
So all those fun toys that were purchased are now being paid for many times over because the unsecured credit cards were used improperly.
The upside to using an unsecured credit card is that you don’t need to have the cash on hand right when the purchase is made. This is only true if the full balance is paid in full once the monthly statement comes around.
A secured credit card requires that money first be deposited into a bank account before you can use the credit card. In most cases, a secured credit card will still have fees associated with them since they don’t charge you interest. These fees may include an application fee, a yearly membership fee, and some sort of maintenance fee.
One application of this is a debit card that basically takes money out of your checking account with each use. Though, usually debit cards have a daily spending limit associated with them; so they won’t incur too many charges in a single day.
For a secured credit card, you’ll basically sign up for a secured credit card by making a deposit that will secure the balance limit of the card or a portion of the limit. Then you’ll be able to begin using the card.
Credit cards are actually a great way to improve your credit rating. If you know you are going to be dedicated to paying off the full monthly balance, then you can use this practice.
You’ll want to first get a credit card that has award points associated with it. Usually one with airline mileage will do just great; or if you can find one that gives you a percentage of cash back into your account.
All you’ll need to do is setup your credit card to pay all your monthly bills. Then all you need to do is pay off the credit card each month. You’ll gain reward points and a better credit rating all in the same process.
This is actually one way you could practice your debt consolidation for bills.