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Credit Basics
Types of Cards |
Since their introduction
over forty years ago, credit cards have made a dramatic impact on how we handle personal
finances. An expensive purchase that was once not affordable is now within reach because
of credit. Don't have cash to pay the whole price? That's OK. As long as you have plastic,
you can buy it immediately and make payments over an extended period of time.
Even the cards themselves have changed. Many cards that look the same often don't work the
same way, and there are so many variations of cards, that it's becoming difficult to keep
track.
Types of Cards
1. Credit Cards
It's an invaluable piece of plastic that offers many conveniences and plenty of purchasing
power. With names like VISA, MasterCard, or Discover you can use this nifty little device
to charge just about anything -- as much as your credit limit allows. And if you're unable
to pay the balance in full each month, don't worry, they'll set up a minimum payment plan
for you that includes lots of interest. As you pay off the balance, your credit limit will
be restored and the cycle will continue....
2. Debit Cards
Often called Check Cards or Cash Cards, debit cards offer you the convenience of
regular credit cards without the temptation of high credit limits. Charges to your debit
card are like the electronic equivalent of writing a check. It's not likely you'll
overspend on a debit card because the balance of your checking account is the credit
limit. Debit cards may not control your spending, but they can prevent you from spending
money you don't have.
Tip: A stolen debit card doesn't offer the same loss protection as a
regular credit card. User liabilities on a debit card can run as high as $500 unlike the
normal $50 limit on most credit cards. Check with your creditor to see what user liability
limits are in place.
3. Charge Cards
Charge cards such as American Express or Diner's Card charge no interest but must be paid
in full each month. Since there are no credit limits on charge cards, it's possible you
could overspend if you're not careful. Most people, however, will be less likely to exceed
their spending plan if they know they'll have to pay in full monthly. If you don't mind
the higher annual fees, charge cards might be the right choice for you.
4. Secured Credit Cards
With this type of card, you deposit a sum of money with a lender and are given a credit
limit usually equal to the amount you deposited -- in some cases, more or less depending
on the lender. If you use the card responsibly and pay your bills on time over an extended
period, many lenders will allow you to convert the secured card into a normal credit card.
Individuals who own a secured credit card are either trying to rebuild credit or avoid
going into debt.
5. "Feel Good" Cards
Get a card that supports a non-profit group such as Greenpeace (a card that is actually
biodegradable), Amnesty International, or the Children's Defense Fund. Each time you ring
up a charge, be content knowing part of your purchase is going to a good cause. Being
charitable also comes with a price -- watch for high annual fees or annual percentage
rates with these type of cards.
6. Rebate/Affinity Cards
Rebate cards are usually associated with frequent-flyer miles or automobile rebate
programs. Affinity cards return a small percentage of the charge back to the institution
who co-sponsored you for the card -- colleges (alma maters), sororities, fraternities,
charities, civic organizations and the like.
Credit and Debt
Calculators:
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• Should I pay off debt or
invest in savings?
• What will it take to pay off my balance?
• Should I consolidate my
debts?
• How Much Am I Spending? |
