Oftentimes, especially during lean economic times and financial uncertainty, families turn to credit cards as a means for meeting their monthly budget needs when cash is not a viable option. Credit cards can be used for purchases, to secure deposits for services such as car rental, or as a means for obtaining a cash advance for those needs that can’t be satisfied by a credit card. While credit can be used as an option to bridge a period of a low bank account balance, many find themselves beneath a mountain of debt with interest changes gaining. In order to avoid the crushing weight of untenable credit card debt, consumers need to be mindful of the pitfalls that can be associated with credit card use; such pitfalls can only be avoided by understanding the terms and conditions related to your bank or credit card company.
One facet of your credit card agreement that should be understood above all others are the fees and other costs attached to your credit card use. You can learn the specific terms of your credit card by referencing the disclosure of terms that accompanies your billing statement. Commonly those terms can be viewed on the website of the financial institution that issued the card. A responsible credit card user should be well aware of the following term categories:
- The established credit limit of the credit card account.
- The annual fee for using the card.
- The grace period allowed for repayment of any accumulated credit balance.
- The fees assessed for a late payment
- The fees assessed for accumulating a balance over the established credit limit.
The credit card credit limit represents the total amount you are able to charge on your credit card without incurring any fees. You may be able to charge an amount above the limit but certain occasions are commonly penalized with an overdraft fee.
The annual fee for the credit card is a fee that is assessed once yearly for use of the card. Several credit card companies provide ways to avoid the fee based on your activity. For instance: A credit card issuer may require an annual fee if you do not use the card more than a set number of times in a given year. Be sure to adhere to the conditions by which you can avoid the fee or be prepared to have the fee assessed annually.
The grace period signifies the amount of time the cardholder has to make payment on an outstanding balance before any additional fees are assessed. Many times you can avoid finance charges if the entire balance is paid back before the end of the grace period. In other situations, if a payment is not received by the end of the grace period, certain fees (often listed as late fees or charges) will be attached to your balance.
Understanding the terms and conditions of your credit card is the first step in ensuring responsible and manageable use of your credit card.