Credit Cards and Debit Cards
It was so long ago that there were distinct differences between credit cards and debit cards. This was largely due to the smaller numbers of banks that were regularly offering debit cards. Credit cards were in a league of their own, but not without consequences. As more consumers applied for credit lines the more misuse began to characterize the whole industry. Many people were left with enormous debts because by using credit they were using money they didn’t really have.
Debit cards gradually caught on these same consumers were attempting to resolve their credit debt by living more within their means and using money that they actually had in their checking accounts. Debit cards or check cards as they’re also called, function in basically the same way as credit cards meaning that you could make purchases but instead of drawing from an independent credit line, the card user would draw from the balance of their bank account, meaning they could only use the money they had and no more.
Debit differed from credit because you could also use them like ATM cards. Cash could be readily withdrawn or the card could be used at the counter to make purchases. This remained a firm distinction between credit and debit for a short time only. Credit card issuers saw the opportunity to close this gap and regain some of the market. This was accomplished by adding features to their cards including the ability to use them at ATMs to make cash withdrawals or cash advances.
Many companies eventually issued debit cards that could be used at places where credit was once accepted exclusively. The lines began to blur between the two card types. Banks and other financial institutions began issuing debit cards that were associated with the major credit card companies allowing them to have wider usage.
The differences between the two cards revolve around specifics of policy and matters of interest rate. Credit cards still attached interest to each purchase where debit cards generally do not have an interest attached because the money you are using does not belong to a lending company but you, the consumer. Of course, there are some advantages and disadvantages to both cards.
With credit cards the primary advantage is still having access to money that you would not have otherwise in order to make purchase or deal with emergency situations. You have funds when you need them. Again the real problem with a credit card is misusing them and creating a major debt through overuse.
Debit cards are good because you use money that is in your account and when it is used you do not have to pay it back. With a debit card, you do not have to worry about accruing serious debt – or not payments, interest rates, or finance charges. The debit car is an alternative to carrying cash and it offers more security since they will only work with a PIN number. The clear disadvantage is that you must have the money in your account to use it.
Both debit and credit can be useful tools, both convenient, yet both have clear advantages and disadvantages depending upon your circumstances. If you can make reasonable use of a credit card, it can be great option to have available if an unexpected financial situation should arise. Debits give you access to your own money and keep you more responsible for properly using your finances.
Choosing The Right Credit Cards For your Needs
There are many great reasons to use credit cards. Making purchases online or over the phone, reserving hotels and rental cars, consolidating payments, etc. But how do you know which one is right for you? Read below to find out some basics on obtaining and managing a credit card.
When choosing the right one, there are many factors to look into depending on your needs. You can find cards that offer cash rebates, low interest rates or rewards. Others may offer low or zero percent interest on balance transfers. With so many different cards and offers to choose from, it is best to shop around to see what credit card is right for you.
Depending on your needs, each credit card will have different advantages and disadvantages. It is important to take a close look at them and how they can make the most of your financial needs. If you are looking into your first credit card this is especially important to make sure you are getting the right card to start you out and help you build good credit. Many people who already have credit cards are starting to pay more attention to credit card offers and the wide variety of benefits available to them. Either way, it is important to do your research and be aware of the fine print. The right credit card can give you security and convenience; but the one that is mismanaged can hurt your credit and your bank account.
Many credit cards have great benefits, but they can also distract from what you actually need. A good idea is to make a list of what your financial needs are for those cards. This way, when you come across the many offers available, you are less likely to be swayed by a credit card that really is not right for you.
Keep in mind that obtaining a credit card is dependant on many factors, such as your credit score. You may not qualify for just any credit card. For example, a low annual percentage rate is a great deal if you want to use your card for long-term purchases, but you may not qualify for this type of card if you have little, no, or poor credit. There are options for people with poor credit histories, such as a secured credit card. Find out what your credit rating is before you start shopping around.
Do not forget to read the fine print – here are a few more important factors to look at:
– Find out how widely accepted your credit card is
– Look to see what the interest is and if it is fixed or variable
– Find out what the annual percentage rate is, if any
– Investigate any potential restrictions or limitations
Once you have determined the type of card that best suits your needs and your financial situation, you can start comparing different offers. The Internet is a great tool to help compare many different offers online quickly and easily. Do not fall into the credit card trap. Be an informed, prepared consumer and find the card that works best for you and manage it well.
Reducing Credit Card Interest Rates
There is no single best credit card rate. If there were there wouldn’t be such a variaty of rates. It really depends on your spending patterns and lifestyle, and you will have to compare credit cards to determine which suits you best.
It is very important to pick the card appropriate for your needs. This will depend on your spending and paying behaviour: if you prefer to pay off all your balance on every monthly statement, if you leave a balance on each statement, if you accumulate a large balance, or if you are a big spender.
Pay your balance off in full each month? You might be the type who doesn’t like to carry debt. Upon receiving your monthly statement, you pay the off the full balance owing. In this case, the interest rate will not be of much consequence to you, since interest is calculated only on debt that you carry into subsequent periods. The best credit card for you would be one that does not charge any annual fee and has a longer interest-free period.
Make sure you always pay your card balance off in full. If you don’t, the high interest rates associated with no-annual-fee and long interest-free-period credit cards will kick in.
Those who carry debt beyond the grace period You may pay only a portion of the amount billed in your monthly statement and carry debt over to the next cycle. It is also worth looking at low interest credit cards which also come with low annual fees.
If you regularly carry debt on your credit card, each percentage point of interest will matter a lot. If your average debt balance is $2000, every 1 per cent difference in interest rate means $20 saved. A high annual fee can be equivalent to 1 per cent or more of interest, depending on your average debt, so you want it as low as possible. There are many low interest credit cards on offer, so check them out and be sure to compare credit cards, feature for feature.
Those with large outstanding balances You may have a substantial outstanding balance and having difficulty paying it off. You may get a lot of help from low interest credit cards specially designed for balance transfers.
These low interest credit cards allow you to transfer balances to a new card at very low or even zero interest rate. The low-rate period may last several months, which gives you a breathing spell to raise funds to pay off the debt. To really maximise the benefits of these low interest credit cards, you should work hard to pay off the entire debt within the low-interest period.
Those who spend a lot and pay off in full You may be among the lucky ones who make a lot of purchases with their card and are able to pay off their balance in full every month. You should be more interested to compare credit cards offering some form of rewards scheme. The important aspects to examine are the rewards points given per dollar spent, the annual fee, and the length of the interest-free period.
These types of cards tend to come with higher interest rates and annual card fees. But since you don’t carry debt, the interest is less significant to you. See if the rewards scheme points can be used against the annual card fee.
Advantages of 0% Interest Credit Card
Like most people, you have probably received offers for credit cards with 0% annual percentage rate (APR). Although this may sound too good to be true, these credit card offers are genuine. As long as you do your research and are cautious with your use, just like any other credit card, 0% APR credit cards can be very beneficial.
0% APR credit cards can actually save you money – just be aware that the zero percent interest that is offered probably has a time constraint so make sure you know what the interest rate will be after the introductory rate expires. Getting a zero interest card that you plan on using and paying off immediately can be a very smart financial move.
The most popular credit card deals offer a 0% APR for at least a year on purchases and balance transfers. The balance transfer option is a very popular offer for people with high outstanding credit card debt. By transferring balances from other credit cards with high interest rates onto a 0% APR credit card, you can start saving money immediately by removing the interest that was accruing on your other balances. Just be sure to budget out your transferred balance so it is paid off during the zero interest period for maximum savings.
A credit card with 0% APR can also be very beneficial when considering one or more large purchases. For example, if you were buying furniture, a 0% APR credit card would be a wise choice to use as you would be avoiding interest rates on the purchase. The key, again, is to pay off the balance before the 0% APR rate ends.
Either way, when using this kind of credit card, the key is to take advantage of the 0% interest. This may take a little more effort and planning ahead, but it is worth it if it helps you pay off other debt or make large purchases without added interest.
Besides these obvious advantages of zero percent interest, there may be other benefits as well. Depending on the lender, 0% APR credit cards may offer some of the same rewards and benefits of other credit cards. Incentives such as travel miles, cash back bonuses, etc. may also be possible with your zero interest card.
Like any credit card, a 0% APR credit card takes some investigation and research before you apply for one. Consider what you will be using it for, how long the zero interest will last and what the interest rate will be once the introductory period ends. If you take advantages of all the potential benefits of a 0% APR credit card you could save yourself a lot of money.
Low Interest Credit Card
Credit can be a powerful thing, but only in a beneficial way if it is managed responsibly. At the start of 2008 the total outstanding balance on credit cards in Australia was $43.25 billion, of which $31billion is accruing interest. According to figures recently release by the Reserve Bank of Australia, Australians spent and average of $17.5billion on credit cards alone in February 2008. This figure exceeds the February 2007 average by a massive $1.9 billion, making credit cards liable for 56% of Australian spending.
This increasing tendency to pay with credit cards has created a competitive marketing environment between institutions, with many providers now seeking to entice their customers with low-rate credit cards.
What is a low–rate credit card?
Low-rate cards offer special incentives such as 0% balance transfer periods and low ongoing interest rates, generally between 9% – 13%.
Features buried within the fine print
The Australian Securities and Investments Commission (ASIC) has urged consumers to be wary of terms and conditions on low-credit deals amid fears many Australians will accumulate debts they can’t afford. While interest-free purchases and low-interest credit offers are popular, they aren’t suitable for everyone so it’s important to understand how it works in order to make use of the attractive rates.
Low rates often come attached with other undesired features such as:
- Annual fees – Higher fees are principal in low-rate cards. In contrast to standard-rate cards which have no annual fee, or a fee that can be subsidised by reward points, a low-rate card requires the payment of an annual fee. These fees can be more than double that of a standard card. So ask yourself if a lower rate is really worth paying a higher fee when this money could be spent towards paying off your balance?
- Rewards program – Reward offers generally come hand-in-hand with a higher annual fee. It’s important to remember that nothing is free and that these incentives are expensive for the banks to operate. So unfortunately, in order to keep costs low, low-rate cards will only offer limited partner or discounted programs without the extra benefits of a full rewards program.
- Cash advance rate – Banks and institutions see cash advance transactions as a high risk. In effect, this is why low-rate cards charge up to an extra 20% for cash advances than on purchases. So if your aim is to keep debt to a minimum, before selecting your card it’s vital to determine whether or not it would be used for cash advances. Otherwise, look for a product that offers low interest rates for cash advances.
- Late payment fees – Making a late payment can add a substantial dent to your debt. Like cash advance rates, late fees are generally higher than that of a standard card.
- Other fees and charges – ATM fees and overseas transactions can be charged at higher rates.
- Limited features – Say goodbye to features such as travel insurance, internet banking, cheque and branch facilities and 24-hour services.
Who can benefit from a low-rate card?
If you struggle to pay off your credit card and revolve your debt from month to month a low-rate card with a low, or no annual fee might be right for you. If you can get a card that offers instant rewards or discounts at places you regularly use, that’s even better considering that these features are normally quite limited. Don’t be swayed by cards that offer balance transfer period unless you have a good repayment habit.