What is a credit card?

Credit Card:– You can use a your credit card to borrow money from the bank to make purchases and  payments. Its more secure to carry and use credit card than a wallet.

Your credit card is issued by a bank, such as FNB, Standard Bank and its the bank that determines your interest rate, fees and rewards, so it’s important to find a bank that offers a card you like.
Transactions are processed on a payment network, like Visa, Mastercard or American Express.
This network determines where the card is accepted. Some card perks — like rental car insurance or cell phone protection — may come courtesy of the payment network rather than the issuing bank.

Credit card companies make money in these ways:

  • Interest payments and fees
  • Transaction fees charged to the merchant every time you use your credit card.
  • Interest payments when you don’t pay off your debt in full.
  • Fees, like late payment or annual fees.
  • You don’t have to worry about that first one. Transaction fees are levied on merchants, not you.

Instead, concern yourself with interest payments and fees.Credit cards charge a number of fees, from an annual fee to cash advance fees to late payment fees.

Most cards won’t have an annual fee unless they offer big rewards or are designed for people with less-than-good credit, but make sure to make at least the minimum monthly payment on time, or you may be slapped with a late fee and a higher interest rate — and you might even see your credit score suffer, if you have a rewards credit card,


Remember:
If you carry a balance, the interest on that balance will eat up any rewards you earn.
If you think there’s a chance you won’t pay off your balance every month, steer clear of rewards cards.


Debts and Credit Cards Review

Credit Cards:– If credit card is not used responsibly it can result to a serious financial problem which can easily lead you into a chain of unpaid bills that chokes your financial future. You should realize that credit card ownership is like a limited personal loan offered to you by credit card company, whenever you need it.

Keep a credit card in your pocket and you have the ability to make purchases anytime, anywhere, without necessarily having the cash needed to pay for it. The bill will come due in 30–45 days — sometimes even less. When you receive a bill, the card company wants back the money it “loaned” you.

If you pay it off in full, there’s no problem. If you leave any of the balance unpaid, the card company slaps you with a pre-determined interest rate – usually somewhere between 12 and 29%, depending on your credit score.

Different Types of Credit Cards
There are several types of credit cards. Although they can be used in different ways, they have one thing in common: they are all considered revolving debts. This means that they allow consumers to carry balances from month-to-month and repay loans over time.

Some common types of credit cards are:
Traditional Cards – These are standard credit cards that are used to charge purchases – Visa, MasterCard, American Express and Discover — are accepted nearly everywhere.
Rewards Cards –These are also called loyalty cards. Most of the store ins SA have loyalty programmes where the issue reward cards to their consumers, banks also have these kind of cards,Here are just a few reward cards titles: Pick n Pay Smart Shopper, Clicks Clubcard., Vodacom Rewards.Woolworths WRewards.FNB EbucksNedbank Greenbacks.Standard Bank Ucount.Jet Thank U.

Premium Rewards Cards –These are cards for heavy spenders and people who travels a lot, with premium cards, you can shop and pay your bills anywhere, in a foreign country, they are also used to pay for airline tickets, concierge services, priority baggage handling, travel insurance, cash back and no foreign transaction fees. They even offer unlimited visits to VIP airport lounges. However, it comes with a cost. The annual fees can be very high.
Balance Transfer Cards – If you are looking to consolidate credit card debt, this is a popular option. Here you can transfer high-interest debt from one or more credit cards to another card with a lower interest rate Some even offer premium rewards like double the cash back. It may be necessary to have a good-to-excellent credit rating to be approved for credit card refinancing. Beware of transfer or annual fees.

Retail cards:These includes cards from retail outlets such as departmental store, gas retailer, clothing stores – these retailers have partnered with bank or card network such as Visa, MasterCard, Discover or American Express. Cardholders may get merchandise discounts or rewards points when they buy from the sponsoring merchant.

Why a Student Should Have a Credit Card
Students may need credit card for the following reasons:- if a student is issued with a credit card and use if responsibly, this then becomes one way of building a solid credit record with the opportunity to take out loans, rent an apartment and much more. Credit cards can help students learn to become more fiscally responsible and manage their money better, You must be 18 years and older to qualify for the card.

Other benefits for students to own a credit card, may be tied to the urge to track spending, not having to carry cash, learning financial responsibility, qualifying for rewards programs and, perhaps most important, having a payment method available for use in case of emergency.
One major negative impact on student having the card is eleviating the level of temptations to spend wildly and this can therefore result into severe credit record damage as well as for the parent or guardian who signed or introduced the student to apply.

Different between credit card and debit card is :-
Credit cards is indirect loan given to you to make purchases while debit card represents your own money – with debit card you don’t owe any one.  Credit card companies lend you money with the anticipation you will repay it at the end of the next billing cycle. If you don’t, they will charge interest on the balance. They also will charge the store where you made the purchase a transaction fee between 1–2%. This is how they make money.


With debit cards, you are spending money that is already in your bank account. The amount spent will be deducted from your account until the account reaches zero or you put more money into it. The bank that issued the debit cards also charges a transaction fee every time you swipe your card. The debit card’s advantage is a budget matter. The amount of available funds drops as you spend.    When it reaches zero, the card will be declined, in which case you won’t owe anyone anything.

Credit cards, on the other hand, compile your purchases and ask you to pay for them all at the end of the month.
If you max out your card, it will be declined, but you still owe whatever charges you made with them.
The advantage credit cards have is they are more secure and have better rewards programs.

If your credit card is stolen or compromised by identity theft, you are not responsible for charges as long as you report it. Also, some of the rewards programs (e.g. cash back, mileage for airline tickets, hotel stays, etc.) can be significant if you use the card often.

With debit cards, rewards programs are minimal and security is a big issue. The thief can spend however much is available in your bank account. You will have to dispute it and will lose access to that money for however long it takes to settle the dispute.

How Credit Cards Work
There are so many credit cards with so many various features and rewards that the first thing to do is research them all and find a card that suits your needs. You can consider offers you receive in the mail, but the best research is available online. When shopping for cards, think about how often you plan to use the card, whether you plan to carry a balance each month, and what rewards you’d like to earn. Read the fine print before applying, particularly as it applies to interest rate charges when you carry balances over from month-to-month. Pay close attention to all fees associated with the card.

Regardless of what type of credit card interests you, the card works in the same basic way. If you’re approved for a new line of credit, the card company will issue a card along with information about interest rates, spending limits and payment deadlines. Issuers determine your rates and fees largely based on your credit score and history. Although interest rates are capped by law, they can be very high and cost you thousands of dollars over time.

If you are approved for a card, you will receive it in the mail. You will then have to activate it — usually by phone. After that, you’re ready to spend. Depending on the type of card you have, you should be able to charge purchases at most of the stores you visit. Make sure you don’t go over your credit limit, as this could cause you to incur overage charges. At the end of each month, you receive a bill and statement. Review it carefully to ensure that you made each purchase listed. If there’s something you don’t recognize, you may be a victim of identity theft.

If you have no questions or concerns about the statement, pay the bill. It’s important to pay it on time every month. A late or missed credit card payment could harm your credit score. Also be aware of your total balance, rather than just paying attention to the minimum payment.
The best practice is to pay off your balance in full each month so as not to accrue interest charges and credit card debt. Paying only the minimum amount could keep you in debt for years longer and will end up costing you more in interest.

Common credit card habits with serious negative repercussions include:
• Carrying over a balance from month-to-month
• Paying only the minimum balance
• No budget to track spending
• Using too many credit cards
• Taking cash advances
• Missing payments and incurring late fees
• Impulse buying
• Exceeding credit line
While all the reasons listed above can ruin your credit, the most maddening one is making only the minimum payment each month. That practice turns a financial limp into a disastrous pratfall that will cost you thousands of dollars in unnecessary interest payment.

There are some emergencies that trap people with debt — especially from outstanding medical bills. Sudden expenses come up and credit cards seem to be the solution. Unfortunately, using credit cards is only a temporary solution. Using a credit card to cover one emergency or pay one extra bill still leaves a hefty debt that is not easy to erase. Interest charges build on the owed balance and getting back in control can seem impossible.

How Credit Card Companies Make Money
Credit card companies make billions of dollars each year off consumers and consumer transactions. While it’s a common belief that most of the industry’s money comes from interest charges, that’s only part of the story.

Here are the main ways in which credit card issuers make money:
Card companies make a large portion of their profits from actual purchases and credit transactions. Most card issuers keep about 2% of the money from every transaction. That means that if you buy R100 worth of groceries with a credit card, the grocery store only receives R98 and the card issuer receives the other R2.

The rest of the money comes from you, the consumer. Credit card issuers make money not only from your interest payments but also from any fees such as late fees, overage charges, cash advances and annual membership dues.
Credit cards can be a useful tool, but only when they are used properly. When you open a new credit card account, be sure you know exactly what you’re agreeing to. Familiarize yourself with all of the fine print, don’t buy what you can’t afford, and pay your bills responsibly.


Different between credit card and Debit card

The different between the two is that:-

Credit card – the bank gives you certain amount of money as a “loan” to use over a specific period of time and you are obliged to be paying back the money every month with some interest. Sometimes you only pay the amount of credit you have used plus interest on monthly basis.

The amount to pay depend on the interest charged and the amount you have spent.

On the other hand, debit card is your money, this is the money you have in your account –  the only different os that the money is not liquid cash rather it is in your account, you use your debit card to purchase and swipe and withdraw cash, then the bank deducts the amount  you have spent plus service fee from your account.

Let’s take a closer look at the differences between credit cards and debit cards.

DefinitionDebit CardCredit Card
DefinitionMoney is deducted straight from your accountUsed to pay for good and services – borrowed money
Source of cashFrom your bank account-saving or chequeAdvanced loan or short term loan given to you to use and pay back
Spending rationyou can only spend what is available in your accountYou can spend more than you have – overdraft
Who pays for the purchaseYou pay for your purchase.The credit card company pays the vendor for your purchase. You pay the credit card company.
BillThere is no bill or statementYou get a bill or statement each month with details of the transactions you have made.
Payment No payment since its your moneyPayment is every month used amount plus interest
Fees and chargesAnnual fees and PIN regeneration fees are applicable.Credit cards have multiple fees applicable. These include joining fees, annual fees, late payment fees, and bounced cheque fees among others.
InterestThere is no interest that is charged.Interest is charged on the outstanding amount if it hasn’t been paid by the due date.
Limit to funds that can be accessedYou can access any amount up to what is currently available in your savings bank or current account.You can use the card only up to the pre-set credit limit on your card.
RewardsTypically, the rewards you get are minimalGet to enjoy cashback, air miles, and reward points which can be redeemed.
PrivilegesDoesn’t come with many privileges.Come with numerous dining, retail, entertainment, and travel privileges (depending on the type of card you have).
Lost card liabilityProtection from theft or loss of the card is minimal.Most cards offer 100% lost liability protection. So, you are not liable for any unauthorised transactions made.

 

 Debit Cards Vs Credit Cards

Debit Cards Pros

  • There is no debt involved since you are using your own money.
  • It is cheaper to use since there are no interest charges involved.
  • Serves as an ATM card as well, so you can use it to withdraw money from an ATM.
  • Approval for a debit card is easier and faster.
  • Doesn’t help build a credit history.

Cons

  • You don’t have the ability to leave disposable cash in your account since money is directly debited.
  • It can complicate balancing your passbook at the end of the month if you don’t keep track of your spending.
  • You may be charged a fee if you withdraw money from a different bank ATM.
  • There is very little protection when it comes to debit card fraud.

 

Credit Cards Pros 

  • Credit cards are extremely convenient and prevent you from having to carry cash with you.
  • Credit cards help you build your credit score.
  • The rewards you earn are much higher than those on debit cards.
  • They provide you with flexibility when it comes to spending since they come with relatively high credit limits.

Cons

  • If you don’t pay your bills on time or in full, you are charged a high rate of interest.
  • Credit cards have multiple fees.
  • Missing a payment (even due to genuine reasons) could end up adversely affecting your credit score. You then must work much harder to build it.
  • While there is a credit limit, you could always be tempted to spend more than what you have. This leads to debt.

 

So, Which One is Better?

As you can see, credit cards and debit cards come with their own advantages and disadvantages.

However, here are some of the instances where you can choose to use a credit card, or a debit based on their pros and cons.

    • If you have spending issues: Debit card

It goes without saying that if you can’t control how much you spend, to use a debit card. Since the money is going from your savings or current account, you are less likely to overspend and get into credit card debt.

    • Withdraw cash: Debit card

When you withdraw money using your debit card, you are gaining access to your own money, so there is no expense involved. However, if you use your credit card to withdraw money, you are withdrawing the money you don’t have. The bank will consider this as a type of loan which you will have to pay back with a high rate of interest.

    • Shopping or making transactions online: Credit card

Credit cards are your safest option while shopping online. If you detect fraud, you can always call your bank and block your card. Moreover, getting an amount reversed to your credit card is far easier than with a debit card.

    • To make a big-ticket purchase: Credit card

Credit cards offer you the convenience of being able to split transactions into EMIs . This makes it a good option to make big-ticket purchases since they become more affordable.

    • For a vacation: Credit card

Most credit cards are universally accepted. So, you can use a credit card when you are overseas and not have to worry about having foreign currency in hand. Do, however, keep in mind that when you swipe your card overseas, you will be charged a foreign currency mark-up fee.