One of the most important financial tools that most of us constantly carry in their wallets or purses are credit cards. They help us buy almost anything that we may want or need without worrying about cash. However, these are not the only types of cards that we can use to organise our financial lives and boost our purchasing power. The popularity of credit cards is constantly falling, as individuals find new, better tools.
Today we will look at the many types of financial cards that consumers can get from banks, stores, and various private lenders, along with their uses and who they cater to.
The Two Main Types of Cards
There are two main categories that most cards fall into. These are “spending cards” and “borrowing cards”. As the name implies, the former allows you to spend the money that you already have in your bank accounts or other sources (such as fidelity points and earned discounts), while using the latter ones enables you to borrow money that you can repay at a later time.
Some financial advisors argue that borrowing cards can be a sure way to debt if not used properly, however, as most individuals find out, they too can be extremely useful, provided that they are used responsibly.
This having been said, here are the choices that you have when it comes to financial cards:
- Credit Cards
As most individuals may already now, these allow buyers to pay for products or services and pay for them later. From a technical point of view, a credit card is similar to a line of credit. It allows its owner to tap into a limited account to pay for various products. Once the limit placed on the credit card is reached, the owner may ask the lender for an increase.
Who Are Credit Cards for?
These are usually more useful to individuals who have a highly-organised financial life and a lot of discipline when it comes to how they spend money. Credit cards can be great tools in case of an emergency. However, they should never be used as a primary source of money.
They offer great protection against fraud and theft (they are locked using a PIN code that only the owner knows). Furthermore, they are great to use as a backup for unexpected payments.
The main downside, however, is that the interest rate is usually extremely high, forcing owners to return the money by the end of the month.
- Debit Cards
Debit cards are essentially gateways to your bank accounts. They allow you to spend the money that you have saved up in your accounts.
Who Are Debit Cards for?
Anyone who has a bank account should also have a debit card. Owners can use them to make purchases without having to go to the bank to take out cash.
Unfortunately, these cards do not have the same amount of protection against fraud as credit cards. While lenders will be able to roll back certain transactions (usually of over £100), this will be limited to only certain types of payments.
- Store Cards
Store cards are, basically, credit cards that can only be used in certain stores. Individuals can purchase products using them and must then repay the money within the month to avoid paying interest.
Who Are Store Cards for?
These are only useful to those who regularly spend money in these stores because they come with discounts. The downside is that the interest rate attached to them is considerably higher than that of credit cards.
- Prepaid Cards
These are very similar to gift cards. They can be used to store certain amounts of money that can then be spent as if it were a debit card.
Who Are Prepaid Cards for?
Prepaid cards are great tools for travellers or individuals who do not have a bank account. They are extremely safe because they can be cancelled when stolen. Unfortunately, they are not accepted everywhere.