Understanding when to use your credit card

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Understanding when to use your credit card

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The entry of the credit card changed the way the world regarded money. Our perception of money is very different from what it used to be. In the past, money was in some sense a limited commodity, at least for the common man. Bank accounts had fixed amounts of money. Expenditure was therefore in relation to these fixed amounts. If one required money over and above these limits, then one applied for a loan, or borrowed money from friends and family. But the credit card changed all that. The credit card introduced the concept of virtual money - money that was available from a secret account and could be paid back at leisure. The very idea that one had ready money at one`s disposal changed the way one regarded expenditure.

It is a long known fact that credit cards also caused a very high level of debt. Almost every family in possession of a credit card was in debt. The debt or money that you owe a credit card company does not function in the same way as a loan payment does. The important difference is the interest rate. The interest rates charged by credit card companies are very high. In a short period of time, the debt balance sky rockets past redemption. Therefore people who had eagerly bought into the excitement of a credit card, found themselves overwhelmed with monthly payments of interest to their credit card companies. Most people then took out other loans just to pay back the interest incurred.

The credit card offers ready money. If it is the best option for emergency expenditure, such as medical treatments, fees, etc. But the key word here is "emergency". What many credit card holders do not understand is that the "ready" money is coming out of an account that you will be charged for later. It is not free money from a bottomless account.

All stores accept credit cards these days. The transaction is extremely simpler, simpler than even carrying around cash. At a store, all one needs to do is swipe a credit card and the amount charged is transferred to the credit card account. Interest is then calculated on the amount spent and charged on a monthly basis. Credit card companies periodically introduce schemes to entice customers. One of these schemes is the credit card awards. Such schemes do not affect the total amount payable to the credit card Company. It can be regarded as a peripheral benefit of sorts.

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