Victor received his first easy credit card , happy and proud. He soon looked for his friend Alejandro the Writer, to tell him about his new acquisition, and that he would pay for the next beer with his new card, with an air of prestige and luxury.
“Look how good, Writer… The Bank deposited RD $ 10,000 on this credit card so I can spend it where, when and how I want. I just have to find a site that accepts this brand, and we can give it there, and with foreign money! ”
Alejandro soon told Victor that the credit card, although certainly an important step in his economic life, was not as easy as he thought, and that before using it, he first had to learn to use it.
“You already come from party pooper, but that’s fine, I’ll take you. Let’s do this: On our next hike through the Mirador we do a class to teach me the ten most important lessons to take advantage of my credit card. ”
Victor: The bank did not deposit any money on that credit card. That is NOT a savings account. When you see that you have a credit limit of RD $ 10,000, what they are telling you is that they are willing to finance consumptions that you make with that card up to that amount. You don’t have to consume everything, nor do you have to finance it. That will be determined by you, not your bank, or your credit card. ”
“Writer, and when they tell me that if I want the code to make cash withdrawals, doesn’t that mean I have that money available for my use?” Yes, it is so. But that is the same as you going to the bank, and signing a promissory note for the amount of the withdrawal you are going to make. Only instead of paying 20% on a consumer loan, you would pay 66% (plus other commissions to withdraw cash). My recomendation? Never finance yourself with your credit card, let alone withdraw cash with it. That is too expensive.
“I know what you’re thinking, so what is the credit card for? It serves for many things. For example, let’s say you make a consumption on January 1. Your credit card “cuts” on January 30, and on that date they will send you the statement, saying that you have until February 20 to make the payment. What are you going to do? When February 20 arrives (or before) you will make the payment of the total balance at the cut-off date, so the bank financed that consumption you made on January 1 for 50 days … at 0% (zero) of interest ! ”
“Writer, and if I can’t make full payment of the amount I owe on the cutoff date, what will happen?” After thinking about it, jogging, Alejandro replies: “At least you must make the minimum payment. The bank will charge you interest for the amount paid on your behalf, for the days from when you made the consumption until you finish paying them. What if that financing will cost you? Yes, it is very expensive, and unless your only other source of credit is a lender or usurer, my recommendation is that you stop making new expenses with the credit card, that you “clean” it, and that next time you only consume the that you will be able to pay (in full) when the statement arrives. ”
“But is it not a ‘credit’ card? And yet you’re telling me never, never to finance me with her. I got lost. ”
Let’s go on the part, replied Writer: “In addition to being a credit instrument, your card is also a payment instrument, and as such, it facilitates your economic activity in an agile, secure way, without needing to walk with cash, and you it benefits, both with the possibility of financing 0%, and accessing loyalty programs, which have paid me more than one travel ticket. ”
“For me,” the Writer continued, “the only reason to finance you with the credit card is in the hypothetical case that the possibility of acquiring a discount of, for example, 10%, something that you had already planned to buy, arises. Maybe that’s worth paying 5% monthly interest … but for a single month! ”
A little worried, the Writer continued: “Yes, Victor, be careful. It has been shown that those who buy with a credit card, consume up to 30% more, than if they bought with cash or debit card. If you find it very difficult to control yourself (as happens to many people), plastic credit is not for you. ”
“Are credit cards really so safe?” “Yes, but they are also subject to fraud, so check your consumption frequently, by your electronic banking, to make sure they are yours. If you see something strange, contact your bank. ”
“Everything is becoming clearer, Writer. One last question: What is the best brand? Visa, MasterCard or American Express? ” “There really are not so many differences, but if you can have two credit cards, I recommend that they be of different brands, because in some establishments they accept one, but not the other.”
“Finally, Victor, this is your first credit card. If you handle yourself with caution and care, you will receive offers from others. Don’t get carried away… For now, I can see you with two credit cards, but not many more.
Handle it well, and you’ll see that this, your first plastic, will open more than one door.
“So it will be, Writer, so it will be. Meanwhile, let’s go for beer. You earned it. ”