Tag: simple credit card

How to Use Facebook Messenger P2P Payments

Posted on | by Jackie Strauss | Leave a Comment on How to Use Facebook Messenger P2P Payments

Facebook Messenger P2P Payments are part of the increasing need where millennials are leveraging mobile devices in order to make small payments to each other. Facebook now brings person-to-person payments to its Messenger application.

What Are P2P Payments?

If you want to get technical, every payment can be a P2P payment since every payment involves two parties where one person pays another. However, P2P payments have been popular due to apps such as PayPal, Venmo, and Square Cash. Social networks like Snapchat and Facebook have also gotten into this, along with traditional financial players.

Peer to Peer (P2P) Payments Definition

Peer to Peer (P2P) payments is a mechanism through which the user can transfer funds from his bank account to another individual's account via the digital medium i.e. Internet or a mobile device.

Source: https://docs.oracle.com

P2P payments work by a person creating an account with a P2P solution and linking up a card so they are set to go. The next time you want to borrow $20 from a friend or split a tab, you can do so by transferring funds in just a click.

How to Pay Friends with Facebook Pay

Following the instructions is easy to set up your preferred payment method and to start sending money to your friends through Facebook Pay It is pretty straightforward. With Facebook Pay, you can make payments through various apps including Facebook, Messinger, Instagram, and WhatsApp.

Add a Payment Method

There are several different payment method options for Facebook
as a whole but only a U.S. debit card will work for Facebook payments currently. PayPal and credit cards can be added later. Both you and your friend you want to send the money to must have a Facebook account, live in the U.S., be 18 years old, have a MasterCard or Visa debit card, have your preferred currency set to U.S. dollars, and not be disabled form sending or receiving money on Facebook.

There are two ways to add a payment method, either by using the mobile app or on the computer.

If you are on the mobile app, tap on the three horizontal lines in the bottom menu. Select Settings and Privacy then select Settings from the menu. Tap on Payments and select Facebook Pay. Then select Add payments. You can also optionally add a PIN that you enter when you want to send money. In that way, you can review the transaction before it’s sent. This provides more security.

If you are on the computer, the process is similar. You will want to click on Settings from the dropdown menu and then click Payments. From there, click Account Settings and Add Payment Method. Enter in your card details and click Save. Once you have added your payment method, you will see it listed when you click on Payment Methods.

Open a Chat and Tap Payments

Once you have added a payment method, it’s easy to send money to a friend securely and safely through the Messenger app or on your desktop when you are logged in to Facebook.com, as well as other apps included in Facebook Pay. Payments won’t be stored by Facebook and will go straight to the recipient’s bank account associated with their own debit card. You won’t be charged a fee for either sending or receiving money. Money is sent right away but it can take three to five business days before the payment will show up in your friend’s bank account.

Mobile Device

If you are on a mobile device, open the Facebook Messenger app and open a chat with the person you want to pay. You can either open an existing chat or you can use the compose button and type in your friend’s name. Tap the blue plus sign button that shows in the menu at the bottom of the screen. Then tap Payments. Enter the amount you want to pay. You can add a note about what it’s for and then tap Pay.

If you are on Facebook.com then open a new or existing chat with the friend you want to pay with the messenger button. Click on the dollar sign in the bottom menu in the chat box. Enter the amount you want to pay and your optional note and click Pay.

If you make a mistake and send the wrong amount, you don’t have any time to undo it. Instead, there are two options to fix the mistake. If the recipient didn’t accept the payment yet, send a message asking them to decline it. Payment is automatically canceled if the recipient doesn’t accept it within seven days of being sent. If the recipient has accepted the payment, message him or her and ask to have them send the difference or sum back to you.

Prevent mistakes with payments by adding a PIN and leaving it turned on. The PIN feature can be used from the mobile app and isn’t available on the web version.

Multiple users illustration

Request or Send Money to Multiple Friends

You can send payments to individual friends but you can also make it possible for multiple members of a Facebook group. You will receive a chat request to make a payment if a group member requests payment from you or other members. If you are the group member that is handling the payment, you can send your request for payment to everyone in the group by opening the group chat or starting a new one and following the same instructions for sending money to individual friends.

Before you enter the amount requested for payment, you will be shown a list of the group members who are part of the group. If you only want to include specific friends in the payment, just add a checkmark beside those friends. You can include yourself if you are chipping in to the pay the same amount as everyone else in the group. Facebook also lets you decide whether you want to enter a specific amount request to everyone or a total sum amount that will then be divided amongst everyone. Once you have made the request, the group chat will display the names of those who have already made the payments so it’s easy to keep track.

Flowchart of p2p money transfer.

Benefits of Facebook Messenger P2P Payments

Facebook Messenger P2P Payments helps keep Facebook users on the platform and adds value. It also opens the door to promotion and loyalty capabilities for advertisers. There is already stiff competition in the payments space, which include Venmo, Snapchat, and several banks. Up until the rollout of Facebook Messenger P2P Payments, Facebook users would, for example, communicate on the site about tickets to a concert but then have to go to another site to exchange money in order to purchase the tickets. With this new feature, Facebook users can stay on the site.

Currently, the strategy is only limited to P2P payments but it can also open a door to wider payment strategies for Facebook when mobile payments are growing.

Security of Facebook Messenger P2P Payments

Facebook already processes more than one million transactions daily on the site and knows that security of P2P payments is a huge concern when it comes to digital money. To manage concerns, Facebook has highlighted the use of secure systems that will encrypt the connection between users and Facebook, as well as card information. The company says that it uses layers of hardware and software protection and the payment system is kept in a secure environment that is separate from other parts of the social network.

Mouse cursor on security. logo.

A team of anti-fraud specialists also monitor for suspicious purchase activity in order to keep accounts safe. An option for iPhone and iPad users who want additional security involves the use of Face ID or Touch ID available on the device itself.

Ways to Keep Finances Safe on Facebook

If you are going to be using Facebook Messenger P2P payments or the social platform for managing your money, there are some tips you need to consider. A password helps keep your financial information secure. When you have a successful transaction, you will see the password or PIN options for future transactions. You always want to keep this secure. Don’t let the new functionality make it easier for hackers and scammers.

You should think about if a friend requests money out of the blue without prior discussion. A person’s messenger account can be hacked. So you want to make sure you are communicating with the right person and they should know when to expect payment. Remember to not share personal details with anyone you don’t know. When you want to exchange personal information with a trusted friend, use a different platform or app so information can’t be compromised by any single website or app.

Advantages of Using P2P Payments

The main advantage of using P2P payments is that they are easy to use, convenient, and quick. Transferring funds from one person to another can be done with just a click of a button. Another advantage is the cost involved. Unlike many other payment solutions, P2P payments are between two parties. This means you don’t have to pay for expensive processing, service, or transaction fees. Many solutions don’t even charge users when they receive the money.

For the most part, payments are secure since they are encrypted and there are fraud monitoring capabilities. Man platforms are also beginning to use extra security features. They will send notifications for every transaction so it’s easy to stay on top of any fraud.

Risks of Using P2P Payments

Even with so many advantages, there are still risks associated with using P2P payments. Refunds can be difficult and possibly nonexistent since there isn’t a middleman involved. Even if payments are immediate, transactions can still take up to three business days to show up in the account. There can be a lot of human error involved, such as sending money to the wrong email address. The biggest concern with P2P payments is with fraud and security.

While P2P payments are secured, this doesn’t mean that they are infallible. If companies aren’t taking the right precautions against fraud, they will be charged with fines. Companies do need to stay ahead of fraudsters but there are still some risks. If you have your bank account connected to your account, instead of just a credit card, then you could be putting your personal data in danger.

Mobile Payments App Adoption by Country

Why Use Mobile Payments?

Mobile payments are some of the most convenient ways to pay. Especially since smartphones are owned by a large percentage of Americans and seem to always be in reach. Mobile payments serve as a natural extension of daily tasks. They are already done on a smartphone, from updating social media accounts to checking the weather. If you put payments in your hand as well, it’s even more convenient than before.

Mobile payments will allow fully digitized financial transactions. Since consumer payments are an important part of the household budgeting process, digital wallets can integrate easily with mobile apps and software so people can see what they are spending and how often. Mobile payments are fast. Searching for cash and waiting for a chip card transaction aren’t a problem when it comes to mobile payments. Consumers just present the mobile device, it authenticates the transaction, and they go on their way. This can create an even more user-friendly experience for consumers and can help expedite business transactions.

How Mobile Apps Can Help You Save Money

If you are struggling to save and need a loan to get out of debt, there can be money-saving apps as well as personal finance sites to help. Getting started with your savings goals can be difficult at first. So it helps to have all the resources you need.

Money savings apps use the power of technology to effortlessly save and invest. Apps are available through Android and iPhone. They help shift your behavior to help you save more, even if this feels impossible. This allows you to manage money more efficiently, so you don’t need a loan for buying what you need. In order to find the right app for you, take a look at the platform and the costs. You’ll see how these apps can help you meet your financial goals. Some examples of apps are below.

Conclusion

Facebook Messenger P2P Payments creates another space to easily send money through a mobile device. The process is simple, whether you are sending money to a friend through the online app or through the desktop site. There is plenty of different security in place to give you confidence that your payments are secure. There are many advantages to using P2P payments, as well as mobile payments, but there are also some risks involved.

As always, it’s important to use caution. Don’t just share information with anyone through an app. Also, always keep passwords secure. While Facebook Messenger P2P payments can make payments to others even easier, there are also many mobile apps that will allow you to meet your financial and savings goals.

Loanry

Your Ultimate Guide to Credit Card Refinancing

Posted on | by Julia Peoples | Leave a Comment on Your Ultimate Guide to Credit Card Refinancing

We all have credit cards. Many of us use them, but we do not know the best way to do so. According to USA Today, Americans owe over $1 trillion dollars in credit card debt and that number continues to increase. USA Today states that about 40 percent of those who use credit cards are able to pay the balance due every month.

The other 60 percent have a staggering amount of credit card debt. There are tons of reasons why people owe so much in credit card debt. We will touch on some of those reasons as you continue reading. We are also going to talk about your options when you find yourself drowning in credit card debt, including credit card refinancing. Keep reading to find out everything you need to know about credit card refinancing.

What Does It Mean To Refinance Credit Cards?

Credit card refinancing is when you choose to take your debt from one or many credit cards and transfer it to another credit card. The overall goal is to save money on the interest you are paying on your current credit card debt. Typically, when you transfer money from one credit card to another, the new card gives you 0 percent interest on the transferred balance. Credit card refinancing can save you money in the long run. It helps decrease the amount of money you have to pay each month. If the interest does not build, you have an easier time of paying off your credit card debt.

Another way to refinance your credit cards is to get a refinancing loan. This is an actual personal loan that you use to refinance your debt. As with anything else, there are positives and negatives to obtaining a personal loan to consolidate debt. Some of these refinance options can be handled online with online applications. Today, it is much easier to file for credit cards and loans online with online card shops.

Bank Gives You a Credit Limit

The bank gives you a credit limit and you cannot borrow beyond that limit. You can pay off the amount you borrow by a specific date each month. If you cannot pay the full amount, there is a minimum payment you must make. Any amount that you do not pay is subject to interest charges. If you do not make the minimum payment or make the payment late, the bank assess a fee. Only paying the minimum amount or getting hit with a lot of fees puts you in a dangerous place. You may run the risk of drowning in debt and need credit card refinancing. Keep reading for more about that.

When you use the credit card, that decreases the amount available to you. As you pay off the amount you owe, that increases the amount available to you. I will give you an example to illustrate how it works.

Your credit limit is $2,000. You purchased $500 worth of items. Your credit limit is currently $1,500. Your minimum monthly payment is $25. You owe $500, but can choose to only pay $25. If you only pay $25, you still owe $475 and will pay interest on that amount. If you pay $500, you owe $0 interest. If you pay $500, your available credit goes up to $2,000. If you only pay $25, your available credit is $1,575.

70% of the United States population carries a credit card, with 34% of Americans carrying 3 or more cards.

Source: shiftprocessing.com

How Does Interest Work On A Credit Card?

I mentioned above that if you do not pay the balance in full each month on your credit card, you have to pay interest charges. That is typically how credit cards work. Some credit cards offer specials where you can get 0 percent interest for a set period of time. I am not talking about credit cards offering special deals. I am talking about a typical credit card interest scenario. It is important to understand how an APR credit card works.

For a typical credit card, they offer a grace period which is a period of about 15 to 30 days between when you purchase items and your monthly due date. Your due date is the same date every month. That means, if you pay off your credit card by your monthly due date, you do not have to pay interest. Interest is calculated on the balance you owe. Every credit card has a different interest rate they charge to your credit card. The initial rate they offer you is based on your credit score. Some credit cards have interest rates as high as 20 percent.

Let’s Take an Example

Let me show you what that looks like with real numbers. This is an example, the numbers may not be what you really see with your credit card.

Your credit card has available credit of $5,000. You have charged $2,000. Your available credit is $3,000. Your minimum monthly payment is $75. You can pay $500. Your new available credit is $3,200.

However, you must consider the interest. Your credit card charges you 10 percent interest. That means you are charged 15.9 percent interest on $1,500 since that is the balance that is left. This is how you determine how much interest you owe. There are a few calculations that take place when determining interest.

  • You take your interest rate (15 percent or 0.1599) and divide that by the number of days (365) in the year:
    0.1599 / 365 = a 0.00044 daily periodic rate
  • You multiple the daily rate (0.00044) by your daily balance ($1,500):
    0.00044 x $1,500 = $0.66
  • Lastly, multiply the number above by the days in your billing cycle (30):
    $0.66 x 30 = $19.80 interest charged for this billing cycle

The bottom line is not paying off your full balance causes you to accrue interest and you pay more money. Over time, this amount adds up and may cause you to have such a high amount of debt, you may consider credit card refinancing.

Hand press button illustration

What Are The Benefits of Credit Cards?

First, I am going to focus on the good things about credit cards. They can help you build your credit. If you are young, or do not have much in the way of credit, a credit card is a great way to begin to build your credit. You should be mindful that the only way you can build good credit is to use a credit card wisely and pay it off every month. Credit cards also provide revolving credit for you. You can keep a credit card forever. As long as you pay the bill timely and more than the minimum amount, you always have credit available to you. You can keep this for times when you have emergency expenses.

Credit cards offer you convenience because you are able to purchase something today even though you will not have the money for it until next week when you get paid. Credit cards provide you the opportunity to purchase the item when you need or want it, even when you do not have the money. Some credit cards offer rewards and incentives, and if used properly, you can actually earn money by using them. You can receive points that allow you reduced prices for airline tickets, dinner, or other items you buy. This translates directly to savings for you.

You can also use them to do credit card refinancing. Some credit cards offer special deals if you transfer the balance of a high interest credit card to a new lower interest one. This can save you money on interest charges, especially if you have 0 percent interest for a set period of time on balance transfers.

What Are The Downsides of Credit Cards?

I would like to touch on the negatives to credit cards. They are another bill. Whenever you use your credit card, you still have to pay for your purchase. That becomes a bill at the end of the month. It is easy not to think about at the time of purchase because you do not have to pay any money in the moment. You will have to pay for it, eventually. There is that pesky interest that I keep mentioning. I keep bringing it up because it is important for you to remember. If you do not pay the bill in full, you have to pay interest on your daily balance. This is something you can avoid, but you must pay the bill in full to do so.

One thing I have touched on only a little bit is your credit score and how credit cards can impact it. Using credit cards improperly can cause your credit score to decrease. When you use credit cards properly, they can help you build your credit. The opposite of that is also true, improper use of credit cards can negatively impact your credit score. Late and missed payments are the most common ways credit scores are negatively impacted. This is true for loans, general bills, and credit card payments. Just using your credit cards can also impact your credit.

The higher your credit card balance, the more credit you are using and this is a negative mark for your credit. Also, the more credit you use the higher your debt to income ratio becomes which also negatively impacts your credit. Carrying a high amount of credit card debt may also put you in a position where you may need to consider credit card refinancing.

What Else Should I Know About Credit Cards?

As I have highlighted above, credit cards are an amazing tool at your disposal. There is a simple credit card that is simple to use. However, you have to use them responsibly. Credit cards can be a constant source of temptation for you. If you know that you have credit available on your credit card, you might feel compelled to make purchases. You may not need these items, or possibly cannot even afford these items, but because you have available credit, you purchase the item anyway.

This is can lead you down a dangerous path of quickly getting over your head with credit card debt. If you begin to feel like your credit card debt is out of control, you may want to consider credit card refinancing. You have to be aware of your own spending habits and will power when it comes to credit cards. There is no one to police you, but yourself.

Another consideration is identity theft. It is much easier with credit cards, especially with online purchasing. You probably have heard that gas pumps are the worse with stealing credit card information. Gas providers try to stay ahead of those who are out to do harm, but they always seem to be one step ahead of the technology used to prevent them from stealing information.

Identity Theft Reports in the United States

Are There Options Other Than Using Credit Cards?

When it comes to credit card debt it is especially important that you remember even though you are not paying money upfront, you still have to pay. If you know that you may not have the best control over your impulse to shop if you have credit cards, you might want to think of alternatives. You can open a savings account and put money in there for extra things you might like to have. Some people call this a rainy day fund. It could be for vacation, emergencies, or just an occasional shopping spree.

It is money set aside for just that purpose, so you are not spending money needed for bills. You are not raking up credit card debt. This way you do not have to worry about negative implications to your credit rating. You will not have to worry about bills coming in at the end of the month.

Saving money for your needs is a great alternative to getting yourself further into debt. If you have ever felt like you were drowning in debt, you know what a terrible feeling that is. Anything that you can do to prevent yourself from getting into the downward debt spiral, is a smart financial move. If you have been deep in debt previously, you want to do everything you can to prevent that from happening again. If you are currently in debt, you want to get out of it as soon as you can. You may feel like it is impossible for you to save money when you are working hard to pay your current bills. This is the time when you may consider credit card refinancing.

What Is Bill Consolidation?

I mentioned a little bit about debt and bill consolidation above, but I want to dig in a little deeper. The major difference between credit card refinancing and bill consolidation is what debt is being paid. Bill consolidation does not just have to be credit card debt. It can be any type of debt that you have. It is consolidating all of your debt into one manageable payment. Often, you are paying off high interest debt with a lower interest loan or credit card. When you are considering consolidating debt, you need to understand what components make up your debt. This helps you determine which debts you want to consolidate and how to do that.

In the following sections, I touch on the positives and negatives about credit card refinancing. It is important to fully understand the pros and cons of consolidation when you are considering it. When you consolidate your debts, you take on more debt initially. No matter if you obtain a loan to pay off your debt, or open a new credit card to consolidate credit card debt, you are adding to your debt to income ratio.

What Are The Benefits to Bill Consolidation?

There are many obvious advantages to consolidating your debt. The biggest one is taking all of your debt with many different payments and consolidating into one payment. This allows you to focus on paying off one payment instead of many different payments. This also allows you to focus on paying off your debt faster. You know exactly what amount you have to pay each month. It does not change based on usage like a credit card does. The interest rate is fixed and does not change based on how much money you pay each month.

Credit card refinancing may also be able to give you a lower interest rate. This is not always the case. However, when it is, it can significantly lower the amount of money you pay over time. When you have a lower interest rate, it decreases the amount of extra money you are paying on top of the actual money borrowed. When you think of interest, you should think of it as a fee the bank, or lender, charges you to borrow money from them.

What Are The Negatives of Bill Consolidation?

There are some negatives that you should consider with credit card refinancing. One major thing you should be mindful about is the interest rate. You should make sure that the interest rate you are given during consolidation is actually lower than what you are paying now. If you end up paying a higher interest rate, you may end up paying more money. When you consolidate your credit, you may have a long repayment time frame. It may take you up to five years to pay off the consolidated amount. Keep in mind that it may take you longer to pay off your debt if you do not consolidate it.

Unlike a loan, there is no time limit to how long it takes you to pay off your credit card debt. In fact, if you only pay the minimum, it could take you over 10 years to pay off credit card debt.

Another major negative to consolidation is you feel like you have managed your debt. Since you have consolidated to one payment, you may feel like you have paid off more debt than you really have. You still have the same considerable amount of debt. You just have one payment. You need to be mindful that you do not get yourself back into the cycle of credit card debt. You actually might want to consider cutting up all but one credit card. Then you might want to hide that credit card so you have it for emergency purposes only.

How Does My Credit Impact Debt Consolidation?

I have not talked too much about your credit score before now, so let me give you some helpful information. Your credit score directly impacts the interest rate you receive during credit card refinancing. That in turn becomes a direct impact on the money you pay each month. Your credit score may seem like it is not that important, but it is a huge deal. Your credit score is prominently displayed on your credit report. Your credit report is a detailed listing of all of your activities involving credit. It shows your payment history, how much debt you have and how you use it.

It shows the age of your credit. It shows all of your late or missed payments. It even shows loans on which you have defaulted. All of these items listed on your credit report impact your credit score. It is built, or destroyed over time and gives lenders an indication of your credit worthiness. It takes hard work to build your credit score. However, it only takes one or two missed payments to send it downward.

Conclusion

I have given you a lot of basic information about credit card refinancing. It is easy to feel like you have no control when you are buried in debt. There are websites that help you focus on getting your debt under control. They can help provide guidance for credit card refinancing so you can feel like you are making sound decisions. When making financial decisions, it is best to have all the information and make rational decisions. This will go a long way to helping you become debt free.

Loanry

Pros and Cons of Credit Cards: Swipe?

Posted on | by Brandy Woodfolk | Leave a Comment on Pros and Cons of Credit Cards: Swipe?

As with almost everything in life, there are both pros and cons of credit cards. Nothing is quite perfect. The question is do the pros outweigh the con? I do not think that the answer will be the same for each person, as everyone has a different financial situation, different characteristics, different strengths, and weaknesses. Therefore, anyone who is considering applying must understand the pros and cons of credit cards so they can answer that question for themselves. 

Good and Bad Facts About Credit Cards

This article is a pretty comprehensive list that you can use to make credit card decisions. You may be in limbo about whether or not you should apply for one, and that is completely understandable. Some people do really well with credit cards while others are drowning in credit card debt. What is the difference between these people? It is usually that one group handles them responsibly and the other does not.

One advice

When looking for a credit card, make sure you do so by considering only reputable lenders.

Many times, the way a person treats a credit card is based on the knowledge of credit cards or the lack thereof. Knowledge is power, in my opinion, so understanding credit cards gives me more power over them than they have over me. Below is a list of the pros and cons of credit cards to empower you as well.

Speech balloons with two opposite opinions

The Pros of Credit Cards

Ah, yes, the pros, aka the bright side to the cloudy day. When you are truly breaking down the pros and cons of credit cards, it is hard to ignore the following characteristics:

They are Convenient

Let’s be honest: a credit card can be one of the most convenient things ever. You can make purchases before you get paid, and you can purchase items online. You do not have to carry cash, so you decrease the chances of losing your money. And, it is so much quicker to swipe a card than it is to count out cash or write a check- yes, some people still do that.

They Provide Revolving Credit

Credit can have the capability of staying open forever, so long as you are paying the bill. If you pay your balance, it will be there the next time you need it, so you have an ongoing loan available. That is always nice, especially if you find yourself struggling around a certain time every month. If you get paid on the 1st of each month but find yourself need milk and gas on the 27th, you can use the credit card to get you through. Pay the balance when you get paid on the 1st and you will have it again on the 27th if times are tough again.

They Can Help Build Your Credit

Credit cards are a great tool for building your credit if you handle it responsibly. The best way to use a credit card is to have it cover small expenses or bills that you have the money for. Then, immediately pay it off. So, for instance, if you need $20 in gas and have the money on your debit card, use your credit card to pay instead.

When you get home, use your debit card to pay off the $20 on your credit card. This shows you using your credit but you still are not paying anything extra. There is a common myth that you need to let your credit card add debt in order for it to build your credit. That is very simply not true- your credit just needs to be used. And, in fact, the faster you pay the debt, the better it looks.

So, repeat that pattern of using your credit and immediately paying as often as you can. And do try very hard not to use it for something you cannot afford. Otherwise, all of your hard work will go down the drain, and your credit will be messed up instead.

Credit Cards Can Get You Through Tough Times- and Some Not So Tough Ones, Too

If you need gas before you get paid, a credit card can handle it. Emergency room trips and co-pays? Pull out your card. Impromptu date night? All you have to do is a swipe. Really, a credit card can help you through pretty much anything, as long as the amount is within your credit limit.

The Promotions can Be Awesome

Sometimes, you can find a credit card that offers 0% APR for 6 months or more. These promotions offer a great opportunity to make payments on a purchase without paying interest. I once worked in a mattress retail store where we sold some pretty expensive mattresses. (If you have not been mattress shopping for the last ten years or so, prepare yourself or you will go into sticker shock.)

This retailer is linked with a couple of finance companies, and they would often run promotions for 0% APR for 36 months, or 24 months. Once they offered it for a full five years. These promotions were awesome to me because I am a proponent of good sleep and good mattresses. The promotions gave me the opportunity to guide my customers to a much better mattress than what they could normally afford.

So, if you want to make a large purchase with a credit card, look for one that offers 0% interest for a set period. Doing this is really no different than putting it on layaway since you are not paying any extra. Just be sure you pay the money back before the interest kicks in.

Some of Them Offer Rewards

I am sure you have seen the commercials. Capital One offers great airline miles, Discover offers double cash back, and so on. Many credit card companies offer great perks for using their card. You might earn some free gas, or over time have enough cashback for a nice night at your favorite restaurant. The rewards may differ, but you should be able to find a card that offers you something you like.

Credit cards pros and cons.

The Cons of Credit Cards

I have always been told that you cannot appreciate the good things unless you know and experience the bad things. In response to that, we will now look at the second portion of the pros and cons of credit cards, otherwise known as the downs.

They are an Ongoing Source of Temptation

While those credit cards are there for you when you need them, they are also there for you when you don’t. For those who feel the need to spend money, having available credit lying around is too much of a temptation. When you are broke, it is easy to tell the difference between what you need and what you do not. When you have money to spend, those lines can get a little blurred.

If you know you will be too tempted to use your credit card, you need to take some precautions. Find a spot to hide it- just do not be like me and hide it so well that even you cannot find it. More so put it out of reach, and out of sight. Maybe you could put it in a lockbox or hide it behind a picture frame. Basically, anywhere that it is not so easy to grab yet easy enough you can get to it when you need it is a good place.

I cannot really remember when but some amount of years ago, there was a commercial about impulse purchases and credit card debt. The lady was standing in her kitchen when some ad came on her TV. She rushed to the freezer to get her credit card out- she had literally frozen her card. She went through a series of things trying to break and melt the ice before the commercial with the phone number went off.

Fortunately for her, she could not get to her card in time, and she could not see the numbers because the ice blurred them. This commercial still goes through my mind when I consider impulse purchases. While the ice was a drastic measure, it was also an effective one.

The idea behind this is that when temptation arises, you cannot immediately give in. You actually have to put in some effort. Hopefully, by the time you have got the card in your hand, you have decided whether what you are going for it is really worth it. Most often, you will probably find it is not.

Credit Card Payments are Another Bill

I hate bills. I hate them with a passion- as my granddaddy used to say, which always seemed a bit redundant to me since the definition of hate is actually passionate dislike. Anyway, I really hate bills. I, unwillingly, came to terms with the fact that some bills are never going to end. At least not unless I decide to live completely off of the land. If I already have to deal with the necessary bills that I despise, why would I want to add another unnecessary one? Though having a credit card in your wallet is not necessarily costing you, using it does.

The Interest- Need I Say More?

I probably don’t need to, but I will anyway. Though sometimes necessary, interest is never fun. Technically, it is money that you do not get to enjoy in any way. It is simply the fee you have to pay for borrowing the money. I understand why credit card companies charge interest. They are loaning you money and taking a risk in doing so.

What I do not understand is why consumers put themselves into a position to owe interest when it is not necessary. Using your credit card because your baby runs out of diapers or your power is about to get cut off is one thing. It may still not be fun but at least it is justifiable. Using that card to go to a Lakers game you cannot afford is just adding a bill. When it is at all possible, save the money for your purchase instead.

They Can Destroy Your Credit

We talked previously about the fact that credit cards can build your credit. Though that is true, they can also destroy your credit if you are not responsible to them. And this is a major factor when comparing the pros and cons of credit cards. Interest gets calculated and added each month to your bill. If you do not pay that interest and some of the principle, your debt will grow. The more money you owe on your credit card, the higher your credit utilization– which is something you do not want.

Credit utilization should be around 30% or less. If the interest on your credit card grows, your credit utilization could show as high as 100%- way above the sweet spot. If you must use your credit card, use as little of it as possible, and pay as much as you can.

Sometimes They Come With Fees

As if paying interest is not enough, sometimes credit cards come with additional fees. Some of these fees include annual fees, monthly service fees, late payment fees, return payment fees, foreign transaction fees, balance transfer fees, cash withdrawal fees… I will stop there but you get the idea.

You cannot judge all credit cards by the fees of another because not all cards charge fees. Those that do are adding to the bill. It is important to check terms and conditions for any associated fees and make an educated decision according to that information. If there are any fees attached, weigh that fee against the benefits of the card. I would not mind paying a $29 annual fee if I received $200 or more in cash back on groceries. Visit some online card shops, look into a few cards, and judge on a case by case basis.

Identity Theft is Easier with Credit Cards

There was once a time when every transaction was taken care of in-person and with either cash or some form of trade. Back then, it was hard to steal someone’s identity. Well, maybe it was not so much hard since someone could use your name. However, they could not clean out your bank account with a keystroke.

Even if they used your name and acted terribly across the nation, who would know? There was no way to track someone digitally so your boss would not run your name and find out you have credit issues. In this digital age, though, it is all too easy to steal someone’s identity and destroy them. Every time I turn around I hear about some new way that it is happening.

And credit cards do not help the matter. Do you know how easy it is for someone to skim credit card information off of gas pumps now? I think it says something about the state of our world that we need tamper indication seals on gas pumps. And worse, tech-savvy people, or just those with the right equipment, have to do no more than get close to you to transfer your credit card info to their device.

Online ID Theft Can Be Worse

So if you carry credit cards around, be cautious. When you make an online or mobile purchase, check-in the web address bar for the lock emblem- that tells you the site is secure. If that is not on the checkout page, back it up and find one that does. Also, if you choose to pay at the pump, check the seal. It is usually a yellow or red color and specifically says, “If this seal is broken, do not use and inform the cashier”.

The wording may differ from place to place, but it means the same thing. If that tape is broken, there is a really good chance that someone has tampered with the card reader. Anyone that is authorized to work on those card readers will have more tape to attach when they are finished.

Credit Cards Usually Have Very Confusing Terms and Conditions

The phrase “terms and conditions” makes my head hurt long before I have even looked at them. I love to read, but all of those tiny, dry words are not my forte. I just need straightforward, basic words. If a person has to read a sentence more than two times and use a dictionary to understand what the words mean, it is simply too much. It is even worse when you put the effort forward to read them only to be met with confusing terms.

Unfortunately, it is really important that you know them, so what do you do? You have a few options. The first is to get on the credit card company’s website and visit the Help section and the FAQs. The information you find there will probably tell you what you really need to know. You can even Google the card itself and see if there are any easy to read posts about it. Or you can call the credit card company and have someone sit on the line with you and break down the terms and conditions.

The Rewards are Sometimes Complicated, Useless, or Both

I love rewards. Who doesn’t? Rewards are awesome- well, they can be. A credit card that gives rewards definitely catches people’s attention, but what happens if they are rewards you care nothing about? If I have a credit card that gets me airline miles, it is wasted. Why? I will be honest- I do not fly. Nope, not doing it.

As many times as people have tried to talk me into it, I have not changed my mind. And, yes, they have quoted me the statistics about flying being safer than driving. Well, I happen to feel like I would survive a crash closer to the ground than I would with a plane plummeting towards the earth, but I digress…

The point is that if the rewards are not relevant to you, why would you care about them? Give me cashback on groceries. With a household of six to feed, including a teenager and two more kids that are almost there, I buy a lot of groceries. Earning some cashback from that would be marvelous.

Even worse, some rewards programs are so complicated, users have no idea what they even have. What good does that do anyone? If rewards are important to you, you can card shop for some that you can use and understand. If you do not care about rewards, just look for a simple credit card. There is no need for complicated if it is not benefiting you in some way.

Credit Card Debt Can Easily Get Out of Control

Like a fungus, interest just continues to grow and spread until credit card debt has taken over your life. Does that sound extreme? Sadly, it is all too real. That is why there are so many debt consolidation companies- they would not be popping up everywhere if there was not a market for them. And that market is bigger than people like to admit, and it is everywhere.

A week ago, I was driving down the road with the radio on, and suddenly a loud booming voice came over the speaker. A man was explaining that we do not have to have credit card debt and that we should call so this company could get us out of it. The commercial itself did not surprise me. What did is the fact that the guy specifically mentioned my area.

On a very real note, I live in a smallish town surrounded by even smaller towns. It is small enough that when I heard this commercial, I looked around wondering, “Since when do we have enough people living here to justify a target market?” I literally spent the rest of the day trying to determine how much money this company could make off of this little town. The answer- apparently enough for the company to dedicate resources to reaching out to us. Completely shocking.

On a serious note, though, debt is indiscriminate. It cares not about your age, religion, race, socioeconomic status, or whether you play quarterback in high school or playing the trumpet. It hits everyone. If you are not careful, it will knock you out of commission. All it takes is one missed payment or even one low payment, and it can take a turn for the worse. By taking the time to understand the pros and cons of credit cards, you are equipped to make wise choices concerning them.

One Last Word of Advice: Keep an Eye on Your Finances

Do not just pay your credit card bill when it comes in. Check it for any errors. The sooner you catch them, the easier they should be to fix. Also, look through your credit reports and check for any errors. If you see debts you do not recognize or addresses you have never used, or anything like that, contact someone immediately. The credit report should point you to the correct person to speak with about that charge.

After you have looked through the credit report, sign up for a free credit monitoring service. Your bank may have one you can use. If not, Creditry will alert you if there are any changes to your credit report. When you receive that notice, take a quick look to make sure it is something you did. You may not prevent someone from stealing your identity, but you can make it really hard and make them regret it.

Conclusion

I have always told my children that anything can be good, or it can be bad, depending on how you treat it. There are both pros and cons of credit cards. If you are responsible with a credit card, it can absolutely help you and open new doors for you. Those who are not responsible, though, will find themselves suffering. Yes, life happens and things go awry, but being responsible and making good decisions when you are in control is a big step in improving your financial state.

If you are still unsure about having a credit card, read over the list of pros and cons of credit cards again and imagine yourself in each scenario. Working through each, can you see yourself suffering or benefiting from them? Let the answer to that question guide your decision.

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Line of Credit vs. Credit Card: Swipe Here or Draw?

Posted on | by Brandy Woodfolk | Leave a Comment on Line of Credit vs. Credit Card: Swipe Here or Draw?
Line of Credit vs. Credit Card

When it comes to finances, there are so many terms and definitions that it is easy to get confused. Many of these terms sound similar, and the available definitions on Google often serve to only add to the confusion. Not everyone is a finance guru, so some of us appreciate much simpler definitions. After all, how are we to know what to apply for or what we are getting into if we cannot even understand the textbook definitions?

For the moment, we are going to speak about the two often confused terms and how they differ: line of credit vs credit card. And for those of us who appreciate simplicity, we will be breaking the terms down into useful definitions and explanations. The simpler, the better, in my opinion. Let us begin.

Line of Credit VS Credit Card: Which is Better?

In truth, it is a matter of need and preference. Both offer benefits and risks. Both can be harmful and helpful. Each can be either the answer to your prayer or temptation you do not need. Either way, in order for you to choose between a line of credit vs credit card, you need to understand them on a basic level in order to make an accurate assessment. Below you will find the pertinent information needed to decide on a line of credit vs credit card.

Benefits of a Credit Card vs Line of Credit

First and foremost, the credit is available when you need it, as long as you are paying on it. You have the convenience of pulling the card out when you need it and simply swiping it. There is not waiting for the cash to be put in your hand. As long as it is available on the card, you are free to use it.

Minimum payments are usually not very high, so you probably will not have a hard time making those payments. My credit card has a minimum payment of $25 per month. Even during the tight financial months, I can usually squeeze $25 into the budget without too much stress. Also, making timely payments can improve your credit score as well as increase your credit limit on your card.

Drawbacks of a Credit Card

One of the biggest drawbacks of a credit card is that the minimum payment required is not really helping you at all. That is because the interest on credit cards is compounded. In simple terms, compounded interest means that it is added monthly. If your interest rate is 10%, your interest will be 10% of the balance on the card for that month. Next month, the interest will be calculated again, and added on top of the previous interest. So, if that is the case, what do you suppose happens if your minimum payment is lower than your interest?

In the simplest answer possible, you will dig yourself into deeper debt every single month. Let’s say you have a credit card with a $200 limit, and that card charges 20% interest. You used $150 of your available credit and your minimum payment is $25 per month. Follow along below to learn what happens if you only pay that $25 minimum.

Month 1 Month 2 Month 3 Month 4
Total Due: $150 $155 $161 %168.20
Interest Rate: 20% 20% 20% 20%
Interest Due: $30 $31 $32.20 $33.64
Total w/Interest: $180 $186 $193.20 $201.84
Payment: $25 $25 $25 $25
Balance: $155 $161 $168.20 $176.84

As you can see, your interest is higher than your payment, so paying only the minimum payment will not get you out of that debt. These numbers are just examples- yours might be higher or lower. The key to getting out of credit card debt is to always make more than the minimum payments. Many cards do not add on interest until the end of the billing cycle. If it is possible for you to pay all or at least some of your balance before then, you will save yourself some cash.

Secured VS Unsecured Credit Cards

As with most loans, there are secured and unsecured credit cards. Secured cards can be of great help to those who have no or low credit. Basically, you pay a deposit on the card, and the company issuing you the card will hold that deposit. Once they have received the deposit, they give you credit. Sometimes, you have to put up the entire amount of credit as a deposit, and sometimes it is just a portion.

For instance, if they are giving you $200 in credit, they might require that you pay as low as $50 as a deposit or may require that you pay the full $200 as a deposit. This minimizes their risk, which is why they are willing to give you credit. If you make timely payments for a set amount of time, the deposit will be returned. Also, they report to the credit bureaus. So even though the cards are secured, they can improve your credit.

Unsecured credit cards are simply approved or not according to your previous credit, your ability to repay, and your promise to pay.

Hands holding plastic credit card and using laptop.

What is a Line of Credit?

A line of credit is slightly different from a credit card in how it works and is given. Let’s go back to the example of you and I being besties and you needing some money. You again ask me for money but this time you have different needs. Maybe you want to take some classes at the community college and you have to pay cash. We know that the classes will cost $1,000, but we have no idea what the materials and supplies you need will cost.

This time I say, “I am going to open a bank account and put $3,000 in it. You can borrow anything you need up to that amount. I will leave that money available to you to borrow as often as you need for the next three years as long as you pay the agreed upon interest.”

You take the $1,000 for the classes and register. Two days later, you receive a list of textbooks you need to purchase and find out the total of them is $600. When classes start, you learn that there are lab fees and other costs you had no idea about. Fortunately, it is not a big deal because you still have $2,000 in the account. You take the $800 you need and leave the rest for future use.

The following month, you pay the required interest on what you have borrowed plus $200 on the principle. Now, you still have $1,600 available when you need it. Every month you pay more than the interest, you are replenishing your line of credit. Though some variables may change, this example is the basic idea of a line of credit.

Benefits of a Line of Credit vs Credit Card

One of the major benefits of a line of credit is that you have access to cash. While you can get a cash advance on a credit card, it is generally not a high amount and the interest is often higher. Plus, there are often fees for getting a cash advance. With a line of credit, the expenses associated are often lower than that of a credit card.

You also have flexible repayment options, usually from one year to more than ten years, and the APR is most often lower than that with credit cards. Lastly, there are very few restrictions, and they are an open ended credit line.

Drawbacks of a Line of Credit

First, the interest rates are usually variable, so your interest may change from month to month unlike a fixed rate loan. Lines of credit generally require an account at the financial institution you are borrowing from and a very good credit score. Additionally, you will likely find yourself paying both monthly and yearly maintenance fees so long as the line of credit is open, even if you are not using it.

Secured VS Unsecured

Most lines of credit are unsecured. This means that you provide no collateral. However, as the lending institution assumes a higher risk, it is more difficult to get a line of credit vs credit card, personal installment loan, or other loan options. If you get approved, though, you have a revolving line of credit that can be handy when you are in need.

Similarities and Differences

Now that we have broken down each separately, let’s take a closer look at which is better between a line of credit vs credit card. The two are similar in the sense that in ways, they are both lines of credit. As you generally borrow, payback, and replenish your credit card funds, it is technically a line of credit.

However, a line of credit is often much higher than a credit card. Credit cards are generally a few hundred to a couple of thousand dollar limits, though some may go higher. Lines of credit can start as low as $1,000 and go as high as the institution allows, though most cap out by $100,000. The highest most go are $25,000.

Interest Rate Differences

You will also typically notice a difference in interest rates in a line of credit vs credit card. These differences can vary widely, as well. Some credit cards offer 0% APR for the first year. With lines of credit, you begin paying interest the moment you take out any of your available credit. However, when interest rates begin, lines of credit often run from 9% to 23%.

Credit card interest rates usually start at 23%, though you may find some a little higher or lower. It is also important to remember that with a line of credit, the interest rates- unless stated otherwise- are variable. You may find yourself paying 9% one month and jolting to 23% the next. This makes it rather difficult to budget your payment.

Also, as previously mentioned, most lines of credit require that you have an account with that institution. This is not always the case with credit cards. In fact, some credit card companies do not have other account types.

Lastly, consider the actual rewards when it comes to a line of credit vs credit card. Most credit cards offer some type of reward. It might come in the form of cashback, airline miles, or other rewards. I have yet to find a line of credit that offers any reward beyond borrowing the money and building your credit- if you pay on time.

An Invaluable Lesson

There is one major downside that comes with both options. Regardless of your choice between a line of credit vs credit card, both can impact your credit hugely. If you have never looked at your credit report or really paid attention to it, I am about to tell you something really important, so pay attention: the more you borrow, the lower your credit score. If you borrow more than 30% of your available credit, your credit score drops.

Wait- what? But doesn’t it look good if I can borrow a lot of money?

Yes, unless you are borrowing it. I know, it sounds crazy, but it is true. The percentage of your available credit that you use at a time is called “credit utilization”, and it is a big factor in your credit score. The lower your credit utilization, the better your score. At the same time, they want to see you use credit. There is just a fine line between using it and using it too much.

Let me help you draw that line

If you have a $200 credit limit, the maximum you use should be $60. If you borrow more, try your best to pay it down to 30% before the billing cycle closes. Keep the amount you borrow as low as possible. However, do not ignore your credit. Sadly, using no credit can hurt you about as bad as using too much.

Which Should I Get: Line of Credit vs Credit Card?

A major factor in this decision is what you need, or will use, the money for. Are you looking to make a large purchase? Paying ongoing extra expenses, like the college example? Or is it more for everyday expenses?

If you just need something to help you put gas in your car or to buy groceries and tissue between checks, a credit card should suffice. If you want to buy a car with cash, need to make repairs to your home, or something similar, you should probably go for a line of credit.

Then again, maybe it is best not to choose between a line of credit vs credit card. Consider applying for both. Just because you have them does not mean you have to use them. If you get approved for both, you can leave them alone until you need them. How much peace of mind would it give you to know that you have money to the side in case you need it? Everyone needs a rainy day fund. Perhaps these credit types can serve as a rainy day fund until you can save one separately.

Line of Credit for Planning Ahead Security

Also, it is likely a good idea to apply for a line of credit long before you actually need it. Let’s say your car breaks down- a common occurrence for the fortunate among us. If you have no money put to the side, or money available to you through credit, you will have to find a way to cover it. If you apply for a line of credit then, it may take a few days or more to be approved. That means you will be stuck worrying about how to get around until you find out if you were approved.

On the other hand, if you applied and got approved for a line of credit months in advance, the stress would lessen. After the initial shock, frustration, and, “What do I do?” reaction, you will remember that you have some money available. You just need to get to the bank to retrieve it. Before you know it, you are back on the road. The bottom line is that it is better to be safe than sorry, so applying for both a credit card and line of credit well before they are needed might turn out to be very beneficial to you.

Conclusion

As you can see, making a choice between a line of credit vs credit card is a personal and situational choice. However, you may find it helpful to have both available to use depending on the situation you face. Another similarity between the two is that lenders for both are widely available. When you are trying to decide where to get a loan or where to credit card shop, Loanry can help. Whether you are searching for a line of credit or a simple credit card, we can help you find a lender that may suit your needs.

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