There are a lot of different types of credit cards as well as a very wide array of programs. To help cut through the confusion all the choices can bring, this guide to credit cards was created. From learning how they work, to getting the one that will be best for you and paying off credit card debt, the following information will provide useful knowledge to anyone who might utilize credit cards.
Understanding credit cards
Anyone using a credit card need to be aware of their basic functions and terms as outlined in how credit cards work. Never forget that a purchase on a credit card is a loan. How that loan is paid back makes a huge difference in how they will impact the user financially.
Credit card types
Learning about all the different types of credit cards is the best way to really understand them. The following are the most important:
Those without established credit usually start out with secured credit cards. The person who receives one of these cards has a credit limit set by the deposit balance they hold in a special account with the issuer of the card.
Credit cards for bad credit covers steps people with poor credit can take to increase their chances of approval, but secured credit cards are usually the best option in these circumstances too.
Keep in mind that pre-approved credit cards do not mean one is guaranteed to receive the card. This is, in fact, a trick of words since everyone is technically pre-approved for any card. These cards often do not have the best deals and applying for the offer will bring a credit check that will reflect negatively on one’s credit if the card is refused.
Interest rates
Since charging on a credit card is essentially taking out high interest loans, understanding credit card interest rates is also crucial. There is a deal of fine print and different factors to consider so a low interest credit card is not always the best way to go even when they can be obtained.
Of course, the single best way to deal with these high rates credit cards charge is to pay off the balances every month before finance charges kick in.
Rewards credit cards
Remember, merchants are charged a percentage of every purchase made with a credit card. Through the responsible use of credit cards, it is possible to make their use a net financial gain by recovering part of what was paid to the merchant in a rewards program.
In addition, these programs tap into the deals offered in promotion campaigns.
One catch is that those without established credit may have to first build it up with other types of credit cards before they can get one offering rewards.
Keep in mind that a cash back credit card usually offers the best for most people. There is usually no annual fee for these cards and roughly 1% they offer adds up over time.
However, those who spend a lot of time in the air or on the road may find better deals with frequent flier credit cards for airline miles and other offers with associated merchants. Travel credit cards are similar but often offer miles on more than one airline.
In addition, with cash backs of around 5%, having a gas credit card is a good move for those who spend a lot of time on the road.
Other specialized credit cards
Credit cards for college students are a convenient way for parents to cover expenses for children away at college, teach young people how to use credit and establish credit records. Some of them even offer rewards. However, responsible use is the key, and laws requiring parental consent for those under 21 in some cases have been established to prevent abuses.
Business credit cards offer ways to track spending, gain rewards and other benefits. On the other hand, they do not offer the kinds of protection regular consumer credit cards offer, and the business owner is responsible for debts on a business credit card if the enterprise fails.
Responsible credit card
Of course, the negatives of credit cards can easily outweigh the benefits if they are not used responsibly. Those who cannot control their spending should either go without or only have one card with a low credit limit.
A credit card balance transfer can be used by those who have already fallen into credit card debt to give them a break from paying interest. However, keep in mind that this break is only temporary, and these cards may make matters worse if the break in interest is not used to pay off credit card debt.
More aggressive measures, to include credit card debt forgiveness and debt management companies or debt reduction services, may need to be considered if other efforts fail.
