Is a Kredittkort Still Worth it in this Economy?
Since their original inception, credit cards have been both a blessing and a curse for most people in the world. They are a convenient way to make purchases, certainly, and can be a valuable tool in terms of building credit. However, they can also be the catalyst for financial ruin if not handled properly.
Part of the trouble, really, is that when they were first introduced, there was not much education about how they work. The pitfalls to avoid weren’t very obvious, and to many, it seemed like a way to make purchases both large and small with little worry about the consequences. After all, on the surface, it seemed pretty simple: spend the money one day and pay it back by the end of the month.
Unfortunately, in practice, it often ends up being a lot more complicated than that. Toss interest rates in the mix, along with potential late fees and the works, and an inexpensive purchase could turn into a hefty fee that you weren’t prepared for. To say that it’s hard to handle is a bit of an understatement most of the time.
This is why it’s so important to have better education about what credit cards are and how they work. Sure, you can look at some of the cursory guides like this one, but they often just aren’t enough to give folks a proper understanding of how it all works. Realistically speaking, it’s a good idea for us to explore several different sources to absorb as much as we can.
Luckily, if you’re looking for a one-stop-shop for details on credit cards, you’ve come to the right place. Follow along to get an idea of what to expect!
What is a Credit Card?
Obviously, they’re a piece of plastic that most of us have in our wallets (be that a digital one or a physical one, of course). We won’t focus too much on that aspect of them, though. Instead, we can focus on the fact that they serve as a form of loan on a small scale.
Just like any other type of credit agreement, they require an application to qualify for. Thankfully, it isn’t always going to be all that hard to apply for them. However, for each time that we do apply, the lenders will do a credit check on us. This can range from a “soft” check to a “hard” one, both of which will affect our credit scores.
You see, every time a new inquiry shows up on your history, a few points will be deducted from your score. While this goes away after a short while and usually is not too impactful, if you go on a spree of applying to fifty cards at once or something, it could be a pretty big deal. So, just think about that before you try for that many at once.
Other than that, though, the only other things to know about the application process itself is that it will likely involve a lot of paperwork. That’s true of most financial agreements and contracts, though, so it’s probably not all that surprising. If you’re thinking about getting one, just be prepared to have to sit down for a time to fill out everything. Thankfully, these days, we can do most of it online or even on our phones.
How it Works
Once you do get approved for one, how does it end up working? Usually, when you get it sent in the mail it comes with a ton of info, so do be sure to read through all of it. While it’s not always the most engaging content in the world for “casual” reading, it is worth having a good understanding of what your contract entails.
That way, there won’t be any confusion in terms of what is involved in your specific agreement. Take note of things like the “grace period,” which is the time that a borrower has to pay off the amount they’ve spent before interest is paid. Most of the time it will be approximately a month, but this can change depending on the lender.
If it’s not paid off by the time the period ends, then you’ll end up getting charged interest. This means that you’ll be spending more than the principal amount to pay the lender back, so that is important to be aware of. It’s another reason why we need to be cognizant of our spending habits so that we aren’t having too much interest charged because of a balance lasting from month to month.
Usually there will be fees on an annual basis as well, known as “APR” or annual percentage rate. Again, it’s another charge that lenders establish. Thankfully, though, a lot of cards for people who have a fair or higher credit score don’t have a security deposit fee or anything like that, so the APR will be limited in comparison.
Types of Credit Cards
For anyone who didn’t know, there are a ton of different types of credit cards. Each fits its own sort of niche, so it doesn’t hurt to be familiar with all of them. You never know what sort that you might need in the future, right? You can find a rundown on them in a general sense here: https://www.experian.com/blogs/ask-experian/how-do-credit-cards-work/.
As is implied based on the name alone, these are the typical style of credit agreement. They work just as described above, and there’s not a whole lot else to be aware of. Out of all of them, they’re certainly the most popular amongst consumers because of how easy they are both to obtain and to use.
For the most part, these are quite similar to the other types that are out there. However, the key difference is that the balance of them has to be paid off at the end of each month. So, there is no carry-over, but there will be late fees charged if the holder isn’t able to pay it off in time. They’re attractive to new borrowers, but anyone can get one.
Again, we’ve got another fairly obvious one here. Student credit cards are for college students who are just starting their financial journey and have limited to no credit history. Typically, they offer some sort of cash back program or other rewards to entice the young audiences.
These are primarily geared towards borrowers who have high balances on other cards or loans. They are able to transfer them onto this type of credit card to get a lower interest rate than the other ones. Unfortunately, they can be somewhat difficult to qualify for, so bear that in mind before you decide to apply for one.
For this category, a lot of the previous entries do have the potential to land in this one as well. However, they’re worth mentioning separately because of how popular they have become as of late. Really, it’s hard to deny the appeal of getting cash back on certain purchases.
Some department stores or other retailers offer rewards cards as a way to keep customers loyal, as well. They’ll offer incentives for taking out a company-specific card such as discounts and the like. Just be cautious around these sorts, though, as they can be easy to over-indulge with.
Are They Still Worth it?
Given all that we’ve covered today, it might seem difficult to make a firm judgement here one way or another. If a person overspends with theirs and ends up in thousands of dollars of debt, well…it’s hard to say that it was worthwhile for them. However, if you’re responsible with it, then they can really come in handy.
For instance, if you’re looking for ways to build your credit score but don’t want to take out a traditional style of loan, these can be your best bet. If you can pay off the balance on time each month, then that reflects positively on your overall history. Eventually, it can even land you in the “high” range, which is attractive for a lot of lenders and can increase your chances of being approved for mortgages and auto loans in the future.
As with all credit agreements, they require a certain amount of self-control and discipline to benefit from. While it can be difficult to manage, often they do end up being worth it. The ability to have a resource to fall back on in a time of crisis or emergency is just icing on the cake, really, considering everything else that they bring to the table.
When applying, be mindful of what lenders you’re looking at. Compare the various interest rates and reward programs that they’re offering before you make a firm commitment. Applying doesn’t mean that you have to accept an offer, after all, so there’s no pressure there. Exercise caution and consider talking to your financial advisor if you’re not sure where to start looking – or if you need some help figuring out the contract terms.