Credit and Credit Cards

Costs and Benefits of Having aCredit Card

Credit Cards

A card issued by a bank or other financialintermediary giving the holder or owner anoption to borrow funds, usually when youpurchase items. Credit cards charge interest and are primarily used for short-term financing.

Credit CardsInterest usually begins one month after a purchase is made, and the amount you may borrow is predetermined. The amount you may borrow (or your credit limit) and your interest rate will be determined by your credit rating.

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Benefits of a Credit Card

1. Ease of making purchases - Makes iteasier to buy items, especially if you do not want to carry a lot of cash. Some businesses require a credit card, such as hotels and car rentals.

Benefits of Credit Cards

2. Your purchase may be protected if it is

lost, broken, or stolen. It may make it

easier for you to return the item.

Benefits of Credit Cards

3. Building your credit history - Having a good credit history is

often important, not only when applying for credit cards, but

also when applying for things such as loans, rental

applications, or even some jobs. Having a credit card and using it

wisely (making payments on time and in full each month) will

help you build a good credit history.

Benefits of Credit Cards

4. Emergencies - Credit cards can also be useful

in times of emergency. While you should avoid

spending outside your budget (or money you

don't have!), sometimes emergencies (such as

your car breaking down or a flood

lead to a large purchase (like the

need for a rental car or a motel

room for several nights.

or fire may

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Benefits of Credit Cards

5. Safety – You can make purchases without carrying around a lot of cash. Helps prevent you being robbed and losing all your money.

Benefits of Credit Cards6. Extra benefits - In addition to the benefits listed

above, some credit cards offer additional incentives, such as discounts from particular stores or companies; bonuses, such as free airline miles or travel discounts; and special insurances (like travel or life insurance). While most of these benefits are meant to encourage you to charge more money on your credit card (remember, credit card companies start making their money when you can't afford to pay off your charges!) the benefits are real and can be helpful as long as you remember your spending limits.

Risks of Credit Cards

1. Overspending - Credit cards encourage

people to spend money they do not have.

Many people will not pay off the balance

each month and continue to

charge, blowing their

budget.

Risks of Credit Cards

2. Interest - If you do not pay off your credit

card each month, you will be charged

interest. The interest rate is usually very

high on credit cards, higher than you earn

on money saved.

Risks of Credit Cards

3. Debt - When people do not pay off credit cards each month, allow the balance to increase with interest, and continue to charge new purchases, they go into debt.

Risks of Credit Cards

4. Credit card fraud - Credit cards can be

stolen or lost. People may also steal the

information off your credit card and make

fraudulent purchases. You must protect

your credit information.

Risks of Credit Cards

5. Impulse buying - People will not wait until

they have the cash or for the item to go

on sale.

Risks of Credit Cards

6. Sacrifice - You may have to sacrifice

things you need now because you must

pay off credit cards for things you have

already purchased. You may have to give

up some long-time goals or give up

saving.