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Friday, February 20, 2009

Secured Credit Cards: Advantages and Disadvantages

Secured credit cards work in the same manner as a checking account debit card, however, there is no actual checking or savings account associated with the card. You make a deposit to the company that issues the secured credit card, and that becomes your spending limit. When you have made purchases that reach the amount of money you deposited, you have to deposit more money in order to continue using the card.

When deciding upon what credit card is the best for you, don’t rule out secured credit cards. In fact, many people are finding secured credit cards to be the best option. Some people choose a secured credit card when they have had credit problems in the past, and obtaining a traditional credit card would be difficult if not impossible. Secured credit cards are great options for teaching your teenagers and college students about responsible financial spending. Secured credit cards help control your spending, since you must have the money before you can make a purchase, unlike a traditional credit card that you don’t have to have the money to back up your purchases.

So, you may be asking why bother with a credit card at all, if you have to have the cash available to fund your secured credit card. In our modern times, it is becoming increasingly difficult to do certain things without having access to a credit card. Have you ever tried renting a car or purchasing an airplane ticket without a credit card? Ever tried booking a hotel room without a credit card?

Advantages of using a secured credit card, other than the obvious advantage of not spending more money than you actually have, include the fact that almost anyone is eligible to obtain a secured credit card. Regardless of your personal financial history and credit score, you can make a deposit with a secured card distributor and obtain a credit card. The only actual requirement to be approved for a secured card is you must be of legal age and have money to deposit on the card.

Other advantages of a secured credit card versus a traditional credit card are that you are not charged an annual percentage rate on the amount that you deposit, and you can have your paycheck deposited directly onto a secured credit card in many instances. A traditional credit card will smother you with interest rates, late fees and finance charges over time, and you’ll end up paying two to three times what you’ve actually charged to the card! With a secured card, you know exactly how much you’re paying for an item. Secured cards allow you to make purchases online when you would not be able to if you didn’t have a traditional credit card.

The main disadvantage to using a secured credit card in place of a traditional credit card is the fact that you have to have the money in advance for any purchase you want to make. While this is an advantage when considering your credit score and the perfect way to avoid getting into debt too deep for you to handle, it is also a disadvantage in the event of an emergency situation. If your car breaks, or your home’s furnace dies and you don’t have the cash available, a traditional credit card would come in handy. Perhaps without ever using traditional credit cards however, you will be able to save enough money to cover emergency instances and not need to rely on credit to bail yourself out of the emergency situation.

Secured credit cards may be the best option for your credit card needs. They allow you to travel conveniently, make purchases by phone or the internet, and without the dangers of falling into financial desperation!



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