Economic Essay on Credit Cards
Kim Bui
Period 5, Econ Final
What is a credit card?
A credit card allows you to borrow money from your bank to make your purchases, whether you’re buying a burger or more expensive products. As long as you pay back the money you borrowed within the “grace period” of 25-30 days, you don’t have to pay extra. If you don’t pay it back in that time period, you’ll have to pay interest – a percentage of the money you owe the bank – on top of what you borrowed.
When you’re deciding which credit card to get, ask yourself one question: will I need to pay interest on my debts? If you pay back everything you spent on time, you can get a credit card with rewards. These cards give you points, cash or airline miles every time you use them. However, if you do use a rewards card, you’ll have a very high interest rate. Which brings us to what to do if you do carry a balance (in other words, you don’t pay off your debt every month). You’ll want to minimize your interest payments, so you should pick a credit card that has a very low interest rate.
Your credit card is issued by a bank. The bank determines your interest rate, fees and rewards, so it’s important to find a bank that offers a card you like. It’s processed on a network, like Visa or MasterCard. The network doesn’t really affect the card, except for giving you random perks like travel accident insurance. Generally, the network isn’t as important as the bank. The credit card companies make money in three ways: interchange fees, or fees charged to the merchant every time you use your credit card; interest payments, for when you don’t pay off your debt in full, and fees, like late payments or annual fees. But you don’t have to worry about that first one. Interchange fees are a problem for merchants. Instead, concern yourself with interest payments and fees.
If you have a rewards credit card, remember that they don’t give those points out of the goodness of their hearts. Most people think they’ll earn more in rewards than
Period 5, Econ Final
What is a credit card?
A credit card allows you to borrow money from your bank to make your purchases, whether you’re buying a burger or more expensive products. As long as you pay back the money you borrowed within the “grace period” of 25-30 days, you don’t have to pay extra. If you don’t pay it back in that time period, you’ll have to pay interest – a percentage of the money you owe the bank – on top of what you borrowed.
When you’re deciding which credit card to get, ask yourself one question: will I need to pay interest on my debts? If you pay back everything you spent on time, you can get a credit card with rewards. These cards give you points, cash or airline miles every time you use them. However, if you do use a rewards card, you’ll have a very high interest rate. Which brings us to what to do if you do carry a balance (in other words, you don’t pay off your debt every month). You’ll want to minimize your interest payments, so you should pick a credit card that has a very low interest rate.
Your credit card is issued by a bank. The bank determines your interest rate, fees and rewards, so it’s important to find a bank that offers a card you like. It’s processed on a network, like Visa or MasterCard. The network doesn’t really affect the card, except for giving you random perks like travel accident insurance. Generally, the network isn’t as important as the bank. The credit card companies make money in three ways: interchange fees, or fees charged to the merchant every time you use your credit card; interest payments, for when you don’t pay off your debt in full, and fees, like late payments or annual fees. But you don’t have to worry about that first one. Interchange fees are a problem for merchants. Instead, concern yourself with interest payments and fees.
If you have a rewards credit card, remember that they don’t give those points out of the goodness of their hearts. Most people think they’ll earn more in rewards than