How your credit card works

If you're one of those who pay the minimum amount due of their card every month and wonder why she or he is buried under credit card debt, this post is for you.


I only ever use my credit card for two things. One to buy plane tickets that are on sale online, and two to book uber trips because I don't have a driver or my own car.

I do not shop online. Well I tried that. It did not end well. It was expecting to get a really nice product, getting something mediocre. Returning said product. Exchanging it because you do not get refunds, still not being happy. Settling for a product I don't need assured that it was an original, only having it cleaned at the store and being told it was not their product. End result? Never going to shop online ever again.

So, going back to the credit card talk. Credit card works like cash. Only its a plastic with  a magnet stripe. This is ideal for those purchases that require a huge chunk of money. Knowing my country, there are risks involved to bringing a wad of cash. One of those risks being theft. Even if you're in a private vehicle or a public vehicle the risk will always be present.

So just like your normal everyday trade, you purchase a product or avail a service and you pay with your card (similar to paying with cash,) only instead of receiving change you get a triplicate of your payment received that you have to sign.

That there doesn't harm you. What harms you is the finance charges. What are those? These could be anywhere from 1% (I think local coop banks still offer that)- 5% (cash advance rate) of your total amount due charged to your account.

Its not that simple though to illustrate here is the reply my bank gave me when I asked about it my MasterCard:

         

We compute finance charge on retail purchases by multiplying each transaction by the number of days from transaction date until statement date and then multiplying it by 3.5% by 12 months divided by 360 days. This is the average daily balance method

So you have to take into consideration, amount you spent, how long it took to be billed, the number of transactions you have and then multiply it by .035 (this is your rate) and then multiply that by 12/360 which I figured would be the month.

Now here's a little secret they do not tell you. (Even on fine print its no longer there.) you don't need to worry about that computation if you pay your monthly balances in full.

Yes folks, you do not get charged finance charges if you pay the amount due in full. Also pay your bills full once every month. Because they charge you payment fees if you do it over and over within the month.

Hope that helps you!

Xo,
Paula