Having the ability to use revolving credit accounts provides consumers with the flexibility of buying now and paying later. Installment cards are designed to give consumers one small monthly payment, and to roll the amount financed onto the account later.
The so-called revolving accounts are in fact a debt. As long as you pay the required minimum requirement each month, you can use the card up to the maximum without further penalties.
Revolving accounts generally have a different interest rate, including the APR, or annual percentage rate, of the amount of credit you may have available to you at any given time. Revolving accounts come with and are limited by the total number of available credit levels.
The key difference between the two types of accounts is the minimum payment, termed the “minimum balance.” Although you may pay that amount each month, for most users, the majority of their monthly billing cycle will involve only the minimum balance due, with the balance leftover at the end of the billing cycle being transferred from one month to the next until it is paid.
A credit card company knows that he has a charge he is going to make each month; their customers know they will pay. So in order to enable them to make those payments, they schedule the minimum payment requirement in such a way as to invariably pay off the balance in advance. If you only pay the minimum payment unscviolentably low, then you will be paying on that one charge for a very long time without touching the overall balance.
If you make only the minimum payment, then you will be paying down the amount originally borrowed, and not using any of your general money for any new purchases. This sort of method of paying down a revolving account keeps them busy, with no choice but to repay the initial charges and then add interest on the outstanding balance.
The drawback of this method of payment is that, since you only pay the minimum, the amount of the new charge will be much larger than if you had paid the balance consistently throughout the month. You do pay monthly, so you can just keep paying the minimum and avoiding the new charges.
That is until you think about the next monthly statement. Until you have behaviors that control your spending, you will never be able to pay off the balance of each charge, so the balance keeps increasing.
If you do insist on paying off the balance at the end of each billing cycle, then the amount you pay toward the new charges due will be only a portion of the minimum payment that you have made, and you will still have it minimum payment for that month. Because the APR is being applied to balances that are a lesser amount of the original total, you end up paying a very high amount toward the interest and not the principal. This method of payment is a sure way of accumulating many unexpected expenses.
If you don’t ever pay off the balance of a charge by the end of a billing cycle, you will be TWO fertile months behind depicted on your regular payment agenda. The computer will almost certainly start sending you warning letters and even sue you for the unpaid balance in addition to any possible penalties from the finance company. Each of these out rightly punitive as they must be, like racking up a late fee fine that you cannot repay.
If you are in a financial hole, or if you cannot make your minimum payments, then they can be a dangerous method of borrowing.
You would most likely want to avoid these risks. What if you want to take something to the movies with your kids but you have to charge it, you can’t make a payment on time?
Before you are tempted to use a revolving line of credit for any reason, you definitely would like as they often have more than its due value. It is easy to get in trouble with them. The whole idea about them is that you have access to money that you borrow from a source. If you abuse revolving lines of credit, there is the very real possibility that what you borrowed will become much more than what you can repay.
Understanding how revolving lines of credit that are supposed to help you if you are in a financial strain often end up damaging you and eating away at your finances. You might even have enough family obligations and mortgages that you find that you are unable to play almost any of your financial or important accounts.
What I have learned is that once you pay off your financial obligations, you should never continue using the balance of the card. The reason is because although they will probably promise you that you can use their revolving line of credit up to a certain amount, if you spend more than you have to pay off, you are Wheat formations from your line of credit.
Are there any lessons to be learned from all this?
Perhaps the most important thing that we should learned is the fact that credit is extremely difficult at times to obtain.