Actually, using your credit card means borrowing money from your bank.
When you use your credit card, actually the card-issuing bank gives you a loan equal to the amount of your purchased items or cash advance. The bank lends you the money and charges you a fee, i.e. interest, for it. For example, if you shop at a boutique, within days after the transaction, your credit card company will pay the boutique for you. All you need to do is to repay the loan upon receiving the monthly statement sent by post from your bank.
Apart from cash advance, if you repay the balance by the date specified in the statement, you won’t have to pay any interest. In other words, from the day of transaction to the payment date specified in the monthly statement, you will enjoy an “interest-free repayment period”.
However, if you do not settle payment in full, your bank will charge you interest. In general, credit card interest is higher than those of other personal loans. For cash advance made with your credit card, in addition to the interest charged, you will also be required to pay a handling fee.
Therefore, when using your credit card, apart from taking care to safeguard it from theft, you should live within your means, and avoid overspending or repaying only the minimum amount. Repaying the minimum amount will only increase the amount you owe your bank and would only lead to dire consequences.
|
