Credit Cards – Functions, Uses & Precautions

Credit Cards - Functions, Uses & Precautions

 

Nowadays debit and credit cards have become very popular in the field of cashless digital banking. Almost all banks now offer debit cards with accounts. However, relatively few people use credit cards in our country. As a result, there are several misconceptions about credit cards. Many people have no idea how credit cards work. However, in the banking of the digital age, it is important to have an understanding of credit cards. Credit cards can help you save money as well as help you make big and expensive purchases.

From this post you will know how credit card works. Having a proper understanding of credit cards is the only way you can understand whether credit cards will bring you good benefits. Because credit cards can sometimes become a burden due to misuse. So learn more about credit cards from this post.

What is a Credit Card?

A credit card is a plastic card that is usually issued to you by a bank to pay various purchases, bills, etc. The simple meaning of credit card is that the bank is giving you a temporary loan or loan through the credit card. You can use the credit card to make purchases from the money given by the bank and later repay this money to the bank according to your convenience.

Credit cards are usually given based on one’s occupation and monthly income. Banks give this loan only after confirming your income directly. In the country, credit card can be taken only if the salary is 30 thousand rupees. Besides, many banks also provide credit cards through FDR or fixed deposits. How much you can spend on a credit card is also determined based on your income. In the country, banks generally give a credit limit of up to 4 times of monthly salary. Credit Limit Your spending limit with a credit card. This is discussed in detail in the next part of the post.

How do credit cards work?

Although a credit card looks like a regular debit card, the credit on the credit card is not your own money or money. It is a loan from the bank. This is known as credit. Bank gives you loan based on your monthly income. That means you need a regular income or permanent job to get a credit card. At present, the banks of the country give credit limits up to four times the salary.

A credit limit refers to the amount you can spend on a credit card each month. If your salary is 20 thousand taka, then you can get a credit card with 4 times that i.e. 80 thousand taka credit limit from your bank. In this case, you have to withdraw your salary regularly to your bank account every month. Only then will the bank be interested in giving you a credit card.

Credit cards can be used to make purchases online or at various stores. Besides, you can avail EMI or installment facility by using credit card for big or expensive purchases. When you use a credit card to make a purchase, your credit card information is passed on to the person buying the product. The seller’s bank then requests permission to use this amount from your bank through the credit card network. If everything is fine and you are within your credit limit, your bank then transfers this amount to the seller’s bank.

The biggest advantage of credit cards is that you are not using your own money. You are completely using your bank money for purchases. The bank will then send you the credit card bill at the end of each month. This bill tells you how much bill you have to pay and the last time to pay this bill.

If you don’t pay within this period, the bank takes extra profit or charges from you. So it is important to pay the credit card dues on time. In this way, credit cards allow you to make purchases even if you don’t have the money. Later, when you receive the money, you have to pay it back at the specified time. And that’s how credit cards work.

However, it is important to take some precautions regarding credit cards. Never buy anything with a credit card that you cannot pay off at the end of the month. This will increase the amount owed on the credit card and your charges will also increase. As a result, credit cards can become a burden for you. Using up the entire credit limit can make it difficult for you to pay it off.

Interest free EMI service can be availed on product purchases. In this, you will get the facility of purchasing expensive items in installments within the credit limit without any additional charges. As a result, you can make small payments in full each month. This installment amount will be added to your credit card bill.

So you should take credit card only if your income is sufficient and stable. Because credit card bills must be paid on time. Otherwise, credit cards can become your headache. It is possible to take full advantage of credit card only if you are careful in using credit card.

 

Dos and don’ts for using credit cards

The number of card users in the country is gradually increasing with the improvement of the banking system. Especially nowadays many people are leaning towards using credit cards. But still credit cards have not become very popular in our country. Moreover, as it is a new thing for many people in our country, there are many misconceptions about credit cards. But everyone should know about the correct rules of credit card usage by breaking these misconceptions about credit cards. This will make it easy to take full advantage of the credit card.

Credit cards are quite a job, but they can easily become confusing. Credit card misuse can land you in big trouble. Basically, credit cards help us save and also simplify all our expenses. But that is possible only by using the credit card according to the correct rules. From this post you can learn about the correct use of credit cards. You can easily save money by using credit cards properly.

Paying dues every month on time

Banks basically lend you money for purchases through credit cards. This loan is later repaid in the form of bills at certain times of the month. Banks give you a credit limit based on your occupation and income. You can spend within this limit on any purchase. However, credit cards provide a bill statement every month. This bill has to be paid within a certain due date. Banks also have an option of minimum due repayment. The bank may charge you extra if you do not pay the bill or repay the debt within this specified period.

This charge is credit card interest. That is, if you do not pay this debt on time every month, the amount of credit card expenses will continue to increase. As a result, the credit card will also become a burden for you. So one should be careful in using credit card. The time of purchase should be within the limits of one’s ability to pay the monthly bills. This is the first and foremost rule in using credit cards if you want to get full benefits from credit cards. So keep an eye on your due date every month and pay it within the specified time. Otherwise, it may become more difficult to repay it in the next month.

Pay off the entire debt or dues

The bank won’t penalize you if you don’t pay off all of your credit card expenses every month. For this, the bank provides a facility called Minimum Payment Due. That means you can repay less than what you spent. However, if the full due is not paid, then the interest will be added in the next month.

As a result, credit cards can gradually become burdened by not paying off the entire debt. Therefore, the entire due should always be paid. This will save you from additional stress in the future. Paying off the entire debt regularly can also save money easily. So one should be careful with credit card spending so that the entire debt is paid off every month.

 

Use the card on demand rather than on whim

Many people use credit cards as a hobby for all kinds of purchases. This should never be done. Using a credit card for small purchases can lead to large amounts of debt. So credit card should be used according to demand in case of purchasing any product. Credit cards are usually more useful for expensive or out-of-budget products. For example, it is useful in case of EMI. Credit cards are also very useful for emergencies. A credit card should be used as a temporary loan. It is better to use a credit card in such a way that you do not have to fall into the extra profit by failing to pay the debt.

Not to use more than 30 percent of credit limit

Regular monitoring of credit limits is very important when using credit cards. Banks can usually give a credit limit of up to 4 times your salary. You can spend only within this credit limit. But never use more than 30 percent of credit limit. Credit limit should always be within 30 percent even if given according to your salary and your ability. By doing this, paying the bills every month will not be a problem.

If you use more than that, it may become a burden for you. Using more than 30 percent of your credit can make it difficult to pay the bill in full the following month. As a result, credit card debt can become high. If you ever use more than that, you should stop using the credit card until the bill is paid in full. It is easy to control your budget and expenses.

Have a thorough understanding of credit card interest

Whichever credit card you take, you should first know about credit card interest and full charges. One should start using a credit card only with a proper understanding of the charges and how the interest will be calculated. You can use credit card as your accounting tool. By using your credit card properly and within the limits, you can benefit from not shopping everywhere. Or credit cards will increase your spending.

Besides, various offers can be accepted at different places through credit card. This results in additional discounts or cashbacks. You can also save through this. So credit cards should be used judiciously when shopping online or in stores. It is most important to stay within your credit card limits.

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