Credit Cards

Definition: A credit card is a credit facility provided by banks for one to buy things without using cash immediately.

Background:
In the recent years, the use of credit cards is becoming more and more popular. Even youngsters too, are using credits cards, not aware of the dangers of these “plastic money”. Without knowing the dangers and hence not using credit cards wisely, many people fall into heavy debt, sometimes even causing one to go bankrupt.

Benefits of using credit cards:

Convenience:
There will not be any more need to carry large amounts of cash everywhere for credit card users.

Spend first, pay later:
Payment for purchases made with credit card can be delayed until the payment due date. No interest will be charged if you pay the bill in full by the payment due date.

Monthly statement:
Credit card users will be spared the hassle of keeping records for all transactions as the bank will send users monthly statements summarizing all credit card transactions.

Perks:
Credit cards usually come with perks such as discounts at retail outlets such as restaurants. Free travel insurance, lucky draws, gifts to new cardholders, bonus points to purchase goods at discount and participation in frequent flyer programmes.

Timeline:
Days:
0                            2                        32                                 53
|------------------------------|-----------------------|-----------------------------------|
Purchase date   Posting date  Statement billing date     Payment due date

The timeline illustrates a typical payment cycle for a credit card purchase with an interest free period of close to two months. There are several important dates to remember:

Purchase date
The purchase date is when purchases are made with the credit card.

Posting date
The posting date is when the bank receives the purchase claim from the store.

Statement billing date
All these claims will be gathered by the bank, and you will be sent a credit card statement on the statement billing date. The monthly credit card statement summarizes the amounts for new purchases made plus any unpaid balances carried forward from the previous statement billing date.

Payment due date
The payment due date is the deadline for payment, which is around 2-3 weeks later.

 

Pitfalls of credit cards:

High interest rates:
Banks will charge very high interest rates if your bills are not paid in full by the payment due date, charging up to a staggering and steep 25% +- per annum.

Overspending
Credit cards are not cash, and the price you have to pay for the items you buy can be paid at a due date, causing people to lose track of how much they are spending.