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Credit Cards

Visa and MasterCard are the major credit cards, but there are others, such as Discover. Thousands of banks issue these cards, and every one of these thousands of accounts differ as to terms, credit limits, eligibility, interest rates, and annual fees. What they have in common is that they are accepted by the same merchants and processed centrally by the same companies. As a general rule, the interest rates on these cards are much higher than bank loans. If you are not intentionally keeping balances on these cards to build up your credit rating, it is best to pay off the entire monthly bill when you receive it.

Grace Periods. Most credit cards give you up to six or seven weeks between when you charge purchases on them and when you have to pay the money or face interest charges. If you charge purchases right after the card’s “closing date” you won’t receive the bill for about a month. You will then have two or three weeks of additional time to pay before interest charges begin. The banks use this period between when they receive money and when they have to pay interest on it–it’s called “float”–to make enormous sums of money. You can use it too. Note that there is no “float” on a credit card cash advance (from a bank teller or an ATM). These begin accruing interest charges immediately.

Travel and entertainment cards are used by high income and business people. American Express is a good example. For a relatively high annual fee, you’ll be able to charge goods and service without having to worry about a credit limit, but you are expected to pay the money back immediately. These cards are used by frequent travellers and often offer special travellers services, like insurance. All now have versions that work like Visa and MasterCard, allowing you to maintain a credit balance. The cards advertise heavily, but it is questionable whether they are any better than Visa or MasterCard. They are certainly more expensive and are accepted in fewer places.

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