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The basic fundamentals behind Personal Credit Cards.

Updated on January 13, 2016

Credit Card Basics

The basic aspect of a Credit Card is that it is a card with a line of credit attached to it. You can use it to make purchases and pay back the balances owed on the credit card monthly. Credit card companies want to increase the amount of people that have their cards on a daily basis. The competition is getting stronger each day in this market which will give us more reasons to use a credit card. With the increasing use of credit cards, they have become a lot more complex with different features such as Rewards, Balance Transfers, Cash Advances, Overdraft Protection, Annual Fees, Benefits, Discounts, and more. In this article I will explain each feature with specific examples.

How to spend money

There are four basic ways to spend money using a credit card; Purchases, Balance Transfers, Cash Advances, and Overdraft Protection.

Purchases - This is the easiest way to spend money by just swiping the card at any P.O.S. (Register) that accepts that type of card. There are generally no fees for making a purchase but you could pay interest if you don't pay the balances by the due date each month.

Balance Transfers - By using a balance transfer you can consolidate your balances your paying interest on to one credit card and benefit from potentially paying less interest, having one easy payment, or even paying no interest for a period of time. Although some credit cards charge a fee with this feature so make sure to ask the credit card issuers about any possible fees or interest rates!

Cash Advance - A cash advance allows you to obtain physical cash off of a credit card. This is a fast and convenient way to get money quickly. Unfortunately, it normally comes with a fee and a higher interest rate than a purchase or balance transfer. If you can wait a few weeks, see if the credit card issuers can balance transfer into a checking account for a smaller fee with normal interest rates to save money!

Overdraft Protection - This is a feature where you can attach the credit card to your checking account to transfer funds from the card to your account, if your account goes to a negative balance. This can save you from some embarrassing moments. This normally has a small fee attached and a higher interest rate as well.

Each of these methods have their benefits and drawbacks, they are used in different situations. To make the most of a credit card, each person must carefully consider how they want to use the credit card. Whether its to make large purchases, build credit, pay off debt, for peace of mind and convenience are all factors to consider.


Rewards Incentive

Today, most credit cards have an incentive attached to the cards whether it is for example cash back, points, rebates, or travel miles. They come in various types, amounts and even bonus rewards in specific categories on some cards. For example, the Citi Double Cash card has a unique rewards incentive by offering 2% cash back, 1% as you spend the money and 1% as you pay. This gives you an incentive to make purchases and pay off the balances as soon as possible. My personal favorite is when the credit card issuers offer $100 or more dollars in rewards for just using the card so much in a specific time frame. Be sure to ask about any limits, expiration dates, or requirements involve with the rewards and bonuses!


Benefits and Discounts

Credit Cards have various benefits attached that are specific to the type of card and the card issuer, For some examples Wells Fargo offers Cell Phone Protection with their Visa cards, while Target offers a 5% discount on their merchandise with the Target Red Card. Some cards offer things such as a 24/7 Concierge Service, Hotel benefits, Auto Rental Collision Damage Waivers, and so much more! The next time someone offers you a credit card, ask them, "How does this card benefit me?" These benefits can be the decision maker between multiple credit cards for if you would like to use one credit card for the rewards and another to have in case of specific situations or unexpected expenses. Think carefully before choosing which credit cards will be in your wallet!


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