Many banks encourage us to use a credit card, but interestingly, there are also more and more offers of cards issued by non-bank institutions.
Eddie Bauer credit card: click here today to find out more
An Eddie Bauer credit card is actually useful in a wallet today, but to be a functional payment tool, you need to know how it works and how to use it.
At first glance, a credit card is no different from a regular debit card that almost all of us received for a personal account. Oh, a piece of plastic with the number and our name, thanks to which we can withdraw cash from ATMs and pay in stationary and online stores.
Although both credit and debit cards are usually used for the same tasks, in practice the two cards differ significantly in different respects:
- the debit card is linked to our bank account – using it, we spend our money that is on the account (or funds allocated as part of the debit account),
- the credit card is not associated with our current account – we use it to spend funds from the credit limit granted to us.
In other words, a credit card is simply a revolving credit card.
Credit limit settlement within the credit card
A characteristic feature of a credit card is the renewal of the credit limit and, therefore, the specific method of its settlement, which allows using the loan without interest.
Credit card settlement takes place in billing cycles in which the so-called interest-free period.
Interest-free period – this is the period in which we can use the funds without charging interest, i.e. use the loan for free. This period is usually around 50 days. The condition for using the loan without interest is the timely repayment of all funds used within a specified period. The deadline is set by the bank and it is usually fixed, e.g. it falls on the 15th of each month.
The card’s billing cycle takes place every month – the bank sends us a statement each month (in paper or electronic form), which lists, among others:
- card operations,
- current card balance,
- debt amount – this amount must be repaid within the prescribed period to use the free loan – the debt repayment period is usually around 20 days with a 50-day interest-free period,
- the minimum amount to be repaid – this is the amount that must be repaid in order to continue using the card – we will describe it in detail below.
To sum up, if we want to take advantage of a free credit card, in the next month we must repay the entire amount used from the limit within the prescribed period.
What is the minimum amount in the credit card settlement?
Credit cards are usually granted with a fairly high limit, e.g. $ 3,000. If in a given month we use too much money from the card and we are unable to pay them back in full in the following month within the prescribed period, we can use the second option of debt repayment – its repayment in installments.
Therefore, we pay as much as we can, but make sure it is at least the minimum amount specified on the bank statement. At this point, the bank will begin to charge us interest on the remaining amount of debt.
The minimum amount is usually around 5% of the total debt. It is very important to pay it within the prescribed period – lack of repayment will mean blocking the card and initiating debt recovery proceedings.
Credit card traps
Unfortunately, using a credit card has many pitfalls that many people have no idea about.
First, the interest-free period applies only to non-cash transactions. The credit card is intended to be used to carry out such transactions – we should use a debit card linked to a personal account to withdraw cash. Of course, the credit card also allows you to withdraw cash from an ATM, however, such a transaction is not only burdened with high fees but additionally, the bank will begin to charge us interest on the amount collected.
The second trap of a credit card is the cost of servicing it – many institutions use an annual fee that you can simply forget about. It can be quite high – e.g. even several dozen zlotys can be collected once. It is usually possible to avoid this fee by making transactions with a card of a certain value – most often it is 12 times the maximum card limit. However, you can find promotional offers where there is no payment for using the card at all!
In addition, banks, especially non-bank institutions, offer credit cards and charge a number of other additional fees, e.g.
- for issuing the card (one-time payment),
- for changing the billing cycle,
- for exceeding or approaching the maximum limit on the card.
The biggest trap of a credit card, however, is the method of its settlement – it is enough to exceed one day of debt payment to lose the right to use the limit without interest, while failure to pay even the minimum amount on time means blocking the card and lack of access to other funds.
Unfortunately, credit card limits are usually quite high and this is not the case – banks know that having access to more cash, customers will be happy to use it. However, repayment of a larger amount within 50 days is much more difficult – thus most credit card users lose their right to interest-free loans quite quickly.