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Credit Card Debt - Understanding the Credit System |
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It is important to understand what credit is and how it works. If you know this then you will be able to use it to your benefit.
Credit is basically used if you don’t have cash on hand. So credit can be used to buy something that you can’t afford at present or you don’t want to use your own money or cash.
You are willing to pay off the loan over an agreed period of time with a creditor(s).
Credit is not physical or tangible, but is a very valuable tool to acquire something that you want now, but can’t afford.
Credit is based on trust between you and a creditor. It is a belief that institutions or people have with you that you can be trusted to repay your loans or credit.
If you can prove to a lender that the money that you will loan will be repaid on time and over the agreed period. Basically can you be trusted to keep your promise to repay your loan(s).
Credit can be used to buy things that you can’t afford now in cash e.g. car, house, holiday, clothes, education etc.
Credit allows you not to walk around with large sums of cash on you. It is much safer and convenient to use a plastic credit card.
Buying stuff on credit can help you with your budgeting, because you will know exactly how much your monthly repayments are.
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The Pros and Cons of Credit Cards - Credit Card Debt |
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There are lots of debates about the good, the bad and the ugly of credit cards and credit card debt.
I have lots of personal experience with having multiple credit cards.
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* The Pros and Cons of Credit Cards
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So I have decided to list the good things and the bad things of credit cards that I have personally experienced.
The good things about credit cards (Pros)
- It is convenient (You don't have to carry cash around with you)
- Handy in emergencies
- You can use credit cards internationally and can use them with thousands of merchants worldwide
- Some banks give you interest free loans if you pay back your credit card in 55 days for example (If you pay whatever you used on your credit card back in one payment then it is interest free)
- Can help you build a good credit history
- Can help you repair a damaged credit record
- You use someone else's money
- Can give your rewards e.g. cash back, voyager miles, points, gifts etc.
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Credit Card Debt - How Credit Works - How Credit System Works |
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The Credit System consists of a continuous cycle of borrowing and lending money.
When there is a break in the cycle then the entire system is effected.
Merchants who sell goods and services will often times allow you to buy on credit from them.
These merchants have to make sales to stay in business.
People who don’t want to use their own cash to purchase goods and services will approach credit card issuers or banks to get a loan to buy it.
Credit lenders will look at your credit score or credit history to see if you are a good re-payer and if you pay on time. If they see your credit history and are satisfied with it, then the credit lender will give you some credit.
Most stores will start you with low credit and as you manage your accounts well then they will periodically offer you more credit.
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Credit Cards
Pros and cons having credit card
For me personally pay as you go is the best way. ...
