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Copyright: John Vink

Credit cards were a wonderful invention, that have evolved over time. Let's not start this article by spending much time describing the history of credit cards, but rather to just provide a summary of what credit cards are about. "Credit cards are an easy to use financial vehicle which allows for purchases to be made (shopping), essentially on a promise to pay at a later date". This promise to pay at a later date, may however incur additional costs or expenses, through interest charges.

Credit cards are convenient, as you don't have to carry large sums of cash in order to make purchases. Credit cards have more security than cash, as anyone can use your cash, but using your credit card is more restrictive to authorized users (although credit card theft, identity theft, and unauthorized use of credit cards are becoming more prevalent than they have been in years past).

Credit card convenience extends to making purchases in stores, through the mail, over the phone, and even through the Internet. Credit cards can not only be a convenient way to make purchases, select cards can also provide some great rewards, bonuses and points to the user Rewards credit cards offer rewards, bonuses and benefits in the way of discounts, special offers, limited sweepstakes opportunities, bonus points that can be exchanged for services or products, and free merchandise. These rewards and benefits can accumulate to the credit card user, just by making purchases using their credit card (of course through using the right credit card that offers the reward/bonus/benefit).

Credit cards, stemming from their convenience, can also be a financial trap if not used wisely. The same “easy to use financial vehicle which allows for purchases to be made (shopping), essentially on a promise to pay at a later date”, has a couple of potential shortcomings. These shortcomings if not attended to, can lead to financial difficulty, and even contribute to potential financial ruin (bankruptcy).

The first shortcoming regarding using credit cards comes from the convenience or ease at which purchases can be made. With credit cards, you can make purchases on credit, without actually having the money to pay for the goods or services. If purchases are made without money to pay for them, this can lead the credit card user to overextend their ability to pay off the credit card debt. Some people refer to this scenario as credit card abuse, where the credit card user adds a lot of debt to their credit card, without the ability to pay back the debt in a reasonable time. The longer debt is outstanding and the more difficult it is to pay back the debt, the more it can potentially affect one’s credit rating in a negative way as well as potentially make acquiring future credit more difficult. Check your credit report, to see what state your credit is in.

The second shortcoming regarding using credit cards, comes from the additional costs or expenses of using credit cards, if the full monthly outstanding balance is not paid by the due date. This is due to the interest charge, or the cost of borrowing money. Generally, credit cards carry a higher interest rate, in comparison to say a line of credit at your local bank (bear in mind that there are low interest credit cards available). If you do not pay off the full outstanding balance by the due date, you will find that you will have an interest charge added to your account, generally calculated on the full amount of the original outstanding balance.

Yes, that’s right, generally the interest charge on credit card bills is not for the difference between what you have paid and what you still owe, but rather on the full amount. For example, say your outstanding balance to be paid by your due date is $1,000 and you pay $999 by the due date, you will actually incur interest charges on the full $1,000 and not the $1 still owing.

If a credit card user has difficulty in paying their credit card debt, the addition of the monthly interest charge on the full outstanding balance will make paying off the credit card debt even more difficult.

If you pay off your credit card balance in full by the due date each month, you can avoid additional expenses (interest charges) that might contribute to financial difficulties regarding bebt repayment. By paying off your credit card balance in full by the monthly due date, you may also improve your credit rating.

To avoid credit card abuse, remember to try to follow these two important tips:

• Don’t make more purchases on your credit cards, than you are able to pay off in a reasonable time.


• Pay off the entire credit card balance each month, before the due date.

For more credit card information and online credit card applications, please visit
www.lots-of-credit-cards.com.

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