For many the credit card is one of the classic images of modern capitalism: the plastic symbol of decadence, debt and reckless over-expenditure. For others it represents the epitome of modern convenience - an indispensable tool to be kept in the purse or wallet, easing the pressure of our busy lives and essential in times of emergency. So what are credit cards exactly? How do they work? And do you really need one?



Credit cards are similar to debit cards in that they provide a way of purchasing goods and services without using any cash. However, credit cards are different to debit cards in that they do not remove money directly from your bank account. Instead the money is lent to you by the card issuer every time you make a purchase. You may be subject to various charges for this service and any money you owe over a certain time will accumulate interest until the debt is paid off.

Since their first introduction by Diners Club in 1950, credit cards have become accepted worldwide and are available with a wide range of repayment schemes and perks. If used wisely they can provide many benefits. They can provide essential financial back up in the case of an emergency, especially when traveling abroad. They are extremely useful for shopping online and offer protection against fraud that checks and cash can't guarantee. And if you are disciplined and pay off your balance every month then credit cards can also be an effective way of earning or saving money. Many cards offer rewards to users in the form of cash back, discounts or other awards such as air miles.

Having said that, credit cards are certainly not essential. They are a responsibility to be taken very seriously as misuse can easily lead to dangerous levels of debt. For that reason you should avoid holding more than two credit cards. Use one for emergencies and the other for normal purchases, as any more cards and it can be difficult to keep track of your finances. Spend only what you can afford to pay back each month and ensure you make your repayments early and without fail so as to avoid any late fees, which, apart from being expensive in themselves can also adversely affect your credit rating. Also avoid using your credit card for small, everyday purchases, especially if you already have an outstanding balance on your card. Even though they may seem insignificant at the time, these kind of payments can quickly build up into large debt.

There are more credit card options available today than ever before, so if you do decide that you want to apply for a card, study the benefits and small print of each one, choose the one that best fits your needs and lifestyle and then use with care!