Getting your first credit card is a defining moment in your life. For many people, it marks the point where they begin to truly feel like an adult. Despite the fact that many of us assume that we will sign up for a credit card as soon as we are old enough, surprisingly few enough understand how they work before obtaining one. Credit cards offer a greater degree of freedom than a debit card, which is what most of us will have experience with, but this extra freedom comes at a price; it requires financially responsible behavior which many young people find themselves unprepared for in the beginning.
What Is a Credit Card?
A credit card looks just like a debit card and works in a similar way in terms of how one uses it. In shops, credit cards are either swiped through a machine, inserted so that a PIN number can be used to verify the purchase, or if the card supports near field communication (NFC), it can simply be waved near a reader in order to be used.
Rather than removing funds from a linked bank account, and thus requiring you to have the balance available like a debit card does, a credit card works more like a small 30-day loan. The cost of the items or services you use will be added up and at the end of each billing period (usually 30 days) the outstanding balance is paid. If payments are late or incomplete, then interest may be charged.
The Benefits of a Credit Card
A credit card offers numerous benefits, the most attractive one is the ability to spend money you don’t yet have. Most people are paid on a monthly basis and so as long as their total purchases don’t exceed their earnings they don’t have to worry about doing all their shopping on or around payday.
Credit cards are also beneficial because they can be used in an emergency. In fact, a growing number of people keep a credit card with them that they only use when no other options are available, ensuring that there are few, if any bills for the card but that it is there, ready to be used should it be required. Look online for credit card tips to find out how to make the most of your credit card.
Grace period is a term that is probably unfamiliar to those who haven’t previously had any financial dealings. The grace period is essentially a deadline extension; let’s say that your billing cycle is every 30 days with a 21 day grace period. This means that, while your bill is due every 30 days, if at the end of the billing cycle you are only able to pay some of the money you owe, then the credit card issuer will allow you a further twenty-one days to pay before any penalties are charged. You should always plan to pay your bill off on time so that the grace period can act as a safety net if there is an emergency.
Signing up for your first credit card is a financially liberating experience and the first taste many younger people have of adult responsibility. Remember though; if you don’t think a credit card is suitable for you, then opt for a debit card instead as the consequences of defaulting on payments can be severe.