personal finance

Credit cards, how do they work?

Credit cards are a great instrument to obtain financing from banks that will benefit you in the long term, but for this you must learn to use them correctly.

The correct use of a card is not to get into debt, nor is it an extension of your money, it is rather a way of using “someone else’s money” more to finance your monthly expenses.

The bank makes you a study of how much you spend and earn monthly and based on that it calculates your line of credit. For example, if you spend $ 500 per month, your bank will approve a credit card in that range.

The idea is that you pay your usual expenses with it and pay the total debt in the following month.

So if I have to pay in cash, why should I have a credit card?

The first benefit of a credit card are facilities such as the months in interest (we will talk about it later), then we have the points that your card gives you with each purchase, according to the contract you have, which you can use later in shops, services and websites, that is, it is almost like cash.

And the last, but most important: you are creating a credit history, which gives you the opportunity to access loans with better interest rates or give you the possibility of buying a house or starting a business.

But how does a credit card really work?

The bank will stipulate a cut-off date, which marks the period in which you can buy things, for example, if it is stipulated that your cut-off day is the 13th of each month, it means that from 13 to 13, everything you buy must be paid from the 14th of that month and can be paid even 20 days later without charge. If you learn to organize yourself well, this will give you flexibility to organize your expenses and money flow.

For everything to flow correctly, you must read your contract with your bank carefully, because it contains important information, such as charges and interest for late payments, how its points system works, extra utilities that include some cards such as transportation service to Airports, concierge service, preference to buy tickets, travel promotions, etc.

How do interest-free months work?

Some stores reach agreements with the bank and allow you to buy services or products in payments, such as plane tickets. The benefit is that you divide something of a very high value into small monthly payments without paying interest to anyone, that is, without going into debt in the time that you decide, almost always they give you the option of 3, 6, 9 or 12 monthly payments.

You must pay close attention because there are also purchases for months with interest, so pay attention to these supposed promotions.

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