Today, credit card payments are one of the most convenient ways to purchase something. Although they work in much the same way as debit cards, there are distinct differences between the two. When used responsibly, credit cards can be a great way of building credit and getting rewarded for purchases you were going to make anyway. Read on to find out more about how these payments work!
Credit Cards Vs. Debit Cards
The main difference between credit and debit cards is that with the latter, you are paying for a transaction with your own money. The amount gets deducted on the spot, and transactions are reflected within a few days. With credit cards, however, you are essentially taking a small loan from your card issuer with each purchase you make.
The good news is that if you pay off your monthly balance on time, your purchases will not incur any additional interest. If you don’t, you will start to accrue interest based on an annual percentage rate (APR) decided by your issue based on your credit history, income, and other factors. As someone who shops responsibly and is conscientious about paying bills on time, credit cards are a great way to spend as many come with perks such as mileages, cashback, and other great rewards!
Understanding Credit Card Interest
Do not be put off by the mention of interest rates, as you will not end up paying anything extra as long as you pay off your balances timely. You will typically be given a grace period at the end of each month to make payment. One thing about credit cards is that customers don’t have to pay off the full balance each month – if you are in a difficult financial situation, you can pay off the minimum required, which can be as low as 1% to 3% off your total balance.
However, keep in mind that any unpaid balance will start accruing interest from that month onwards, rolling over into the next billing cycle. If you are someone who tends to forget about deadlines, you may wish to set up a standing order of a fixed sum to be paid every month.
Reasons to Opt for Credit Cards
- Better Fraud Protection
Sure, many contactless payment systems offer a good level of security these days. But the truth is that credit cards offer that little extra bit of protection over debit cards. Many card issuers protect customers with a $0 liability against unauthorized changes. This means that if you notice any fraudulent transactions on your statement, all you need to do is report it within a fixed period and you won’t be charged!
- Earn Rewards
Are you a frequent flyer, or is there one particular category in which you spend more? With so many major credit cards out there to choose from, you can easily find one with a rewards program that suits you. Start accumulating points for purchases you would have made with one payment mode or other!