Should i get a Credit Card? Why? If so how should I select one?

Hello Friends,

Today we are going to discuss about Credit Cards.

Are you a person thinking on whether to get a credit card or not? Then you are the right person to read this.

Actually, what are Credit Cards?

Credit card are electronic cards provided by banks as a short-term loan facility for the convenience of the people.

The interest rate is higher than loans, actually it is almost as double that of the normal loans but for some reason people don’t get it, maybe because it is a loan that should be settled within a month.

Normally credit cards have limits, the limits are derived by your current income.

If you have a higher income the bank may offer a credit card with a higher limit. The vise versa is applicable for lower salary personals.

How ever this is not a charity card given by the banks. The motive they have is to put you in dept so that you are not able to pay the next month.

What are the cost components that the bank charge through the credit card?

1.    Annual fee.

This is the fee that is grasped by the bank through its customers for using the credit card-Normally the first year is free.

2.    The Late payment Fee

This is the charge of the bank for customers who do not pay the credit card bill on time

3.    The Interest.

This is charged only when you do not settle the bill on time, then an interest will be charged on the total dept in the credit card.

4.    Handling charges

This cost component is rarely seen in the credit card but it may be there when paying the annual fee, this is mainly the documentation charge.

Offers of a credit card?

Actually, this is something that is awesome about credit cards, this is one reason that millions of people use credit cards.

Each months the banks promote their card by offering bulk discounts to customers using their card.

For an example a person using a particular credit card may have a 50% discount for a night in a particular hotel.

So, this is huge to the customer he may stay in the hotel for a day enjoy everything paying half its rate.

How do banks profit from Credit Cards?

Even though the bank offers bulk discounts, they profit by making the people use more.

That is if an ordinary person has a monthly income of 100 $ and let’s say he has a credit limit of 250 $, when he goes on vacation, he spends 200 $ on hotels enjoying its discounts.

Will he be able to pay 220 $ for the next month for the banks?

Actually No,

What he will do is that he will pay the amount to the bank in about 4-5 months. So, in this period what the bank does is that he will charge the customer an additional amount which is the late payment fee plus the interest to the total dept that he owes the bank.

He will be happy because he enjoyed a good holiday since he did not have money at the time of need and he pays the small term loan which is the credit card dept in installments. The bank is happy because he has a profit which is the late payment fee and the interest which is very high compared.

What are the other tactics of the bank to gain profit?

The bank wants its customers to use the credit cards for as long as possible.

So, what the bank does is that they provide interest free loans to be paid on installments to different items in different shops.

Let’s say that a customer went for an installment plan for 2 years. That means that the bank has taken its first step to retain its customer.

He will be using the credit card for the next 2 years there by generating the annual charge and now the bank has time to market its product more and make the customer use it more often.

So, is it a Loss to use a Credit Card?

Actually, no if you are using it right.

If a person pays his bills on time then there will be no interest and hr will be profitable because he has used the discounts of the credit card and he is not charged for it either.

I have seen individuals saving millions by rightly coordinating the credit card.

How to use a credit card in a profitable manner?

It’s all about thinking.

Let’s say that you are a person earning 100 $ per month. And the Bank has offered a credit card of a limit of 250 $

First determine your average cost per month.

Let’s say that you spend 50 $per month as an average.

Then to what extent can you use your credit card?

Even though you have a limit of 250 $ you can use the credit card up to an extent of 50 $ only (Earnings-Average monthly cost).

This is because if you use more than that then you will have no excess money to pay the full amount from your salary thereby you will be in dept and interest and late payment fee will be charged.

Since you do not see cash going out you will really have a tendency to use more, know your limits do not fall for it.

Tips when selecting a Credit Card?

Select catalogs of credit card from each bank for analyzing.

Find the bank with the least annual interest rate.

Most probably many of them will have the same.

If so, use your qualifications it bargains with the bank, most banks offer life time free membership for certain qualifications, use what you have.

Most importantly identify the offers that you are seeking, for an example a person may be interested in buying items in bulks therefore he may find a credit card that suits his requirement.

Do some market research see who offers more.

Do you have a credit card? What are the issues you are facing? Is it profitable? Join in for discussion.