Financial Planning and Usage of Credit Card - University Essay

This essay examines the use of credit cards in financial planning, emphasizing the importance of responsible usage. It begins by defining credit cards as short-term loan instruments and outlines their operational mechanics, including borrowing limits, interest rates, and repayment schedules. The essay highlights the advantages of credit cards, such as convenience and the ability to make purchases on credit, while also addressing potential drawbacks like high interest rates and penalties for late payments. It provides a comprehensive overview of strategies for managing credit cards effectively, including careful statement review, timely payments, and expenditure tracking. The essay concludes by reiterating the benefits of informed credit card usage while cautioning against overspending and excessive debt accumulation.

Running head: FINANCIAL PLANNING AND USAGE OF CREDIT CARD
Financial Planning and Usage Of Credit Card
Name of the Student
Name of the University
Author’s note

1FINANCIAL PLANNING AND USAGE OF CREDIT CARD
Introduction
Credit card is instrument of the banking system by which the banks provide short-
term loans to any individual. The credit card helps an individual to carry less cash and
purchase anything on credit. The process of the working method of the credit cards are
pointed below:
Credit cards allow a individual to borrow money up to specific limit and the borrowed
amount has to be repaid to the bank on specified time period.
Credit card carry high interest rate than other type of credit, and the interest rate
depends on the features of the card and the terms and conditions specified by the bank. The
interest will be charged on all outstanding transactions and the failure to repay the monthly
instalment will attract high penalty charges (Yüksel Zengin & Kartal 2016).
The payment of the monthly instalments are kept in a specified date which the
customers can fix as per his her preference this is an advantage of the credit card payment
system as the customer will get the time to arrange funds as per his or her convenient time.
The new rule that come from first of January is that, the banks cannot impose retrospective
interest charges on the borrowed amount. This brings an added advantage for the users of
credit card (Hernandez Jonker & Kosse2017).
The high interest charge can become a burden for the user if he fails to repay the
monthly instalment on time. If the borrower makes minimum repayment of the credit card
each month then the borrower has to pay more interest and the and also the final settlement of
the borrowed amount will also extended (Ponce Seira & Zamarripa 2017).
Apart from the disadvantages credit card can be useful also, if the user can use the
following steps of managing the credit card

2FINANCIAL PLANNING AND USAGE OF CREDIT CARD
The user should always check the credit card statement carefully to ensure that any
extra charges are not imposed on them.
The due date of the payment of the instalment should be checked on regular basis as
missing the due date would charge penalty on the user (Ru & Schoar 2016).
Maximise the monthly repayment amount, as it will reduce the burden of payment for
a long period.
Never use credit card to make domestic expenses on regular basis.
Always spend as per the basic requirement and never go for over expensive items.
Keeping of a tracker of expenses is essential so that it gives an alarm that the expense
burden has been increased significantly.
Change the pin of the credit cards on regular basis to avoid the occurrence of
cybercrime.
Always pay the monthly instalments on time to avoid the payment of high amount of
penalty.
The user can avoid the overspending y reducing the credit limit.
Conclusion
Based on the above discussion it can be concluded that the customers of credit card
should be aware of the fact that there are some benefits of using credit card. The user should
be aware of the fact that over usage of credit card will lead to the excessive burden on the
user, if the user does not have enough fund to cover the interest expense of credit card.

3FINANCIAL PLANNING AND USAGE OF CREDIT CARD
References
Hernandez, L., Jonker, N., & Kosse, A. (2017). Cash versus debit card: the role of budget
control. Journal of Consumer Affairs, 51(1), 91-112.
Ponce, A., Seira, E., & Zamarripa, G. (2017). Borrowing on the wrong credit card? Evidence
from Mexico. American Economic Review, 107(4), 1335-61.
Ru, H., & Schoar, A. (2016). Do credit card companies screen for behavioral biases? (No.
w22360). National Bureau of Economic Research.
Yüksel, S., Zengin, S., & Kartal, M. T. (2016). Identifying the Macroeconomic Factors
Influencing Credit Card Usage in Turkey by Using MARS Method. China-USA
Business Review, 15(12), 611-615.