Credit Card Basics and Savings Tips

Our society depends so much on credit, setting a monthly budget just doesn't seem to matter anymore. Having the luxury of an easy and hassle-free spending alternative makes it too easy to buy the things we want, without saving for them. Credit cards can make shopping easy. But hassle-free? No way.

Credit cards might seem like the pot at the end of the rainbow to small kids, but in reality, they are more like tiny bankers in our pockets. We are tapping into a loan with each purchase, and while that allows us to make impulse buys (not a good idea most of the time), it also makes it easy for the "banker" to charge us interest. The short-term benefits of having the credit have long term consequences of paying off the "loan" before compounding interest kicks in and starts hurting.

Credit cards are getting easier to obtain, too, and the process involves submitting an application that acts as an agreement between you and your credit supplier. If they approve of your application, you will shortly receive your card in the mail. The supplier will set a pre-determined limit on how much you may borrow at a time, and up to that limit, you can purchase goods or access cash from their "bank." Most credit card firms place a limit on your monthly spending.

On the back of your credit card is a black strip that is encoded with secure information about the card and about you. During a transaction at a retail store, the machine at the cash register will read the information on the strip and communicate with the headquarters of the credit card supplier. Your payment status will determine whether the supplier will authorize the current transaction. There are millions of places that accept credit cards in person, and many more that accept cards by telephone or on the web. You can also use your card to withdraw cash from ATM machines that accept your particular card type.

Around the world, there are seven major credit card operators. Mastercard, VISA, Citi, American Express, Diners Club, JCB, and Discover. Of these, VISA and Mastercard are the most widely accepted and largest companies. Some banks or other companies will form a partnership with a particular card supplier, and use them exclusively.

When you make a purchase in a physical store, you are generally asked to "swipe" the card by sliding the magnetic strip through a card strip reader. When you purchase online, you will be asked to provide your credit card details on the web site itself. Be certain to check for the secure lock image in the bottom right corner of your browser before you purchase online, as there are some unscrupulous operators online, as in all parts of life. Once your puchase is approved, your credit card supplier will mail you a bill for your purchase. You can either make a partial payment, or preferably, pay the full amount of your purchases for the previous month. If you do pay the bill in full, on time, you will not be charged interest.

Some people choose to make only a partial payment, in other words, not paying off the full amount of their purchases made during the previous month. If you do that, you will be charged interest. And interest generally is applied retroactively to the day you made the purchase. If you make several purchases, or buy things that are expensive, the interest can add up surprisingly fast. This is how the card companies earn their revenues. They also sometimes charge late fees if you fail to pay some or all of your bill by the due date.

Credit cards can be valuable and convenient tools for today's shoppers. Many have learned, however, that the ease of use is in no way worth the hassle of facing insurmountable interest charges. Pay your balance in full whenever possible for every purchase you make. Better still, tuck your card away to use for emergencies only, and use old-fashioned cash instead.

Article Source: http://www.articlemonk.com

Author Robert Jonsonn is a columnist for various busy web magazines, on personal health care and consumer protection topics.
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