| Payment cards allow you to make purchases virtually anywhere in the world, easily and conveniently. The most familiar types of payment cards are credit and debit. Both provide secure alternatives to cash and checks. Here's what you need to know about the options available to you.
A credit card allows you to pay sometime in the future for purchases you make today. Consider a credit card as a short-term bank loan that must be repaid by monthly payments. If you don't pay your balance in full, you will usually be charged interest on the unpaid balance.
You should carefully review these card basics before selecting a card:
Interest Rates/APRs/Finance Charges
Fixed Rates
Variable Rates
Introductory Rates
Balance Transfers
Grace Period
Annual Fees
Fees
Customer Service
Rewards
Payment Options
Charge Card
Credit Limit
Secured Credit Card
An important factor in choosing a credit card is the interest rate, which is sometimes also referred to as the APR (Annual Percentage Rate) or finance charges. This is the fee you pay to a lender to borrow money. Interest is charged as a percentage of your outstanding balance. APR is the yearly rate or percentage that is paid on credit balances.
If you pay your balance in full every month, normally you are not charged interest, so the interest rate will not affect you. But if you carry a balance from one month to the next, you'll incur interest or finance charges. To see how your interest rate affects the amount you owe.
The interest rate is determined by the bank or financial institution that issued the card to you.
These interest rates charged for your credit card typically won't change from month to month, or even year to year. However, this depends on your agreement with the card issuer – be sure to read it carefully.
This interest rate is often linked to the broader interest rate, or the prime interest rate, that the government charges banks to borrow money. A variable interest rate is subject to change when the prime rate is adjusted by the Federal Reserve Board. Often, the variable rate quoted to consumers is several points higher than the rate it is based upon (such as prime plus five percent). The interest on a variable rate credit card is determined by the card issuer and changes can occur periodically according to the terms and conditions of the card. This can affect your monthly payments if you carry a balance from one month to the next. Be sure to read the credit card application, and your credit card statement to understand how your interest rate is calculated.
Some credit cards offer consumers a lower introductory interest rate that typically expires within the first six to 12 months that the card is used. When that introductory period ends, the interest rate usually increases to the card's standard rate. In some cases, the introductory rate may only apply to balance transfers (see below) from another credit card. Make sure you read your application and terms of agreement to understand whether the rate is an introductory interest rate and when you can expect to see increases.
A balance transfer allows you to transfer your balance from one credit card to another. If you have a credit card balance that you don't expect to pay off in a month and you have another credit card with a lower interest rate, transferring your balance to the lower rate can save you money.
Some financial institutions will allow a grace period (often 25 days) before charging interest on your purchases.
Some card issuers charge a fee each year to use their cards.
Sometimes you may find extra charges or fees on your monthly credit card statement if you use special services, such as cash advance or balance transfers. You may also be charged fees when you make late payments or when you charge amounts over your card's credit limit. Fees for late payments and exceeding your credit limit can be avoided with smart management of your account. Be careful, these fees can add up quickly.
Has your payment card been stolen? Was your card turned down at 1:00 a.m. on a Saturday night? Are you on vacation and need a replacement card? Customer Service is the place to turn. Your bank or the financial institution that issued the card usually offers a toll-free, 24-hour customer service number. It can be found on the back of your credit card and on your monthly statement.
Some cards offer air miles, free gasoline or other rewards for every purchase you make. These rewards are special benefits for keeping your account in good standing, or sometimes for shopping with particular retailers. Be sure to read the full offer so you know if there are any annual fees or higher interest rates associated with these rewards programs.
With most credit cards, you have a choice between paying some or all of your monthly balance.
- Partial payment allows you to make a "minimum payment" of your total balance due. The rest is "revolved," or added, to the next month's statement. Revolving a balance almost always means that you will be charged interest on the remaining amount. You should always pay at least the minimum amount due to avoid late payment charges. Paying more than the minimum due will also shorten the amount of time it takes to pay off your credit card balance.
- Full payment means you have repaid your total balance. Doing so usually means that no additional finance charges are applied. Certain cards – such as "charge" cards require full payment each month.
Charges to this card must be paid in full each month that a statement is issued.
This is the maximum amount of charges that the financial institution has determined you can make to your credit card. It's important that you carefully monitor your spending to make sure that your purchases do not exceed the card's credit limit, because when they do, you will be charged a fee or denied an authorization. You may also be prohibited from using the card until the balance is below the card's limit.
The credit line or credit limit with a secured credit card is typically equal to an amount the customer deposits with the bank or financial institution that issued the card. Secured cards help those with damaged, little or no credit history to build a good credit record.
Debit and Automated Teller Machine (ATM) cards are typically offered when you open a checking or savings account.
The basic ATM card allows you to withdraw money directly from your checking or savings account. Access to the account is restricted by a Personal Identification Number (PIN). To keep your account secure, never share your PIN with anyone and do not write the PIN on the card.
A debit card is similar to an ATM card, but it also can be used for purchases at merchants. The purchase amount is deducted directly from your bank account, so there are no interest charges. Keep a running tab of how much you withdraw, so that you will not spend more than you have in your bank account. Fees for exceeding your balance can be charged.
Since the debit card is limited by the amount of money in your bank account, it can be an effective tool to help you control spending. You may be asked to enter your PIN or to sign a receipt, when making a purchase with your debit card.
Some debit card transactions take several days to be deducted from your account. As a result, tracking your balance only through ATM receipts is not the most effective way to monitor your spending. If you deduct purchases and withdrawals as they occur in your checkbook register, you will have the most up-to-date accounting of your available balance.
For ATM and debit cards, you should check with your bank to determine the fees for using your card to withdraw money from another bank's ATM.
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