A credit card can assist you in establishing credit, making quick payments, and meeting day-to-day needs. Understanding how credit cards work will help you grasp the advantages of having one over a debit card. Understanding how credit cards work will help you manage your debt more responsibly.
Know the difference between Credit cards vs. Debit cards
Credit cards provide you with a line of credit that you can use for purchases, debt transfers, and cash advances, requiring you to repay the loan amount over time. When paying using a credit card, you must make at least the minimum payment each month by the balance’s due date. Interest will be charged if the full balance for purchases is not paid off. For balance transfers and cash advances, interest will be charged from the date of the transaction.
Debit cards allow you to withdraw money from your checking account quickly and easily. There is no interest imposed on this money because it is not a loan. You will not be required to make any monthly minimum payments. However, you must be careful not to charge more than your checking account balance allows.
A transaction fee of a credit card
An annual fee or an introductory annual fee may be charged on credit cards. The fee amount varies by card and is subject to change after an introductory period. You may be charged a late fee if you make a late payment. Depending on the activity, certain credit cards may additionally charge additional fees. A few examples are cash advance fees, balance transfer fees, and foreign transaction costs.
Although most debit cards do not levy annual fees, they may incur overdraft fees if insufficient funds in the associated checking account. Debit cards are convenient because there are no monthly payments on a balance and hence no late penalties.
How can you improve your credit score?
Credit cards, unlike debit cards, can be used too. Your credit card issuer will report each monthly payment to the three credit reporting agencies. You will be contributing to the successful rating of your credit score with each monthly bill that you pay. Using credit cards properly helps you develop credit by demonstrating to lenders that you can manage debt.
Benefits of credit card EMI calculator
One of the most significant benefits of a credit card EMI calculator is the ability to convert any purchase above the value of Rs. 10,000 into Equated Monthly Installments. You don’t have to pay the entire sum at once using this function; instead, you can pay a portion of it over time. If you believe that the EMI option is advantageous because it allows you to avoid paying a large sum of money all at once, you should reconsider.
Banks or card issuers typically offer a lower interest rate when you choose a longer-term EMI, but this does not necessarily indicate that the total amount of interest you must pay is less. When you select the EMI option, the principal outstanding amount is deducted from your credit card limit. When you pay your EMIs, your debt diminishes. Remember that you won’t be able to increase your credit card limit until you’ve paid off all of your EMIs.