The Credit Card Friend Or Foe?

By: Jim Brown

The credit card industry is very lucrative for the companies largely because of the effect of compound interest. The credit card differs from the debit card. With the debit card you are using funds that are already in your account they belong to you.

In the case of a credit card that money is being loaned to you by the credit card issuer. There is a period that is known as the grace period (usually between 25 to over 30 days) within which if you pay off the amount used there would be no interest charged on the amount.

If the period ends and you have not paid back the amount then interest charges are added. Interest will be charged then over the whole period that the amount remains unpaid. Most companies will send out a statement every other month indicating the amount to be paid and the interest rates charged.

If the borrower cannot pay the whole amount they are free to pay a minimum amount. Most experts advise consumers to pay more than just the minimum otherwise they may never finish paying the amount. Most cards have an interest of 18-23 % and department stores cards have an even higher rate. Most department stores have tapped into the lucrative credit sector creating parent companies to manage the credit section.

Some companies will offer companies a lower interest if they have a good paying record and a certain level of income. But you have to ask for it; you have to bargain for it just does not come to you. There are ways you can lower your credit card debs and reduce your obligations.

Because of intense competition between credit card companies you will receive in the mail once in awhile offers for balance transfers at a lower interest rate than what you may be paying for at the moment. This means that you offer to accept the credit card from the rival company which in turn pays off your old debt with the other company and you repay that amount to the new but at a lower interest rate.

The problem with this rate is that it is limited to a specific period after which the rate goes up. Before accepting a balance transfer, you should assess your financial position carefully in the coming months. Debt consolidation is another way of reducing credit debt that allows you to make one single payment a month and pay off the debts faster. Credit card companies also offer incentives as air miles rewards, cash back rewards and gift certificates in order to retain customers.

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