How bjs credit card work
A bjs credit card is a revolving line of credit that allows you to make charges at any time up to the amount of a specific credit limit.
When you swipe your credit card, your bank loans you the money to make that purchase. Unlike a loan, which has a fixed end date and regular monthly payments, with a credit card, you choose how much to repay each month—a minimum payment, a partial payment or your entire balance. With few exceptions, responsible credit card users always pay their balances in full every month.
After you make a purchase with your credit card, the bank gives you a grace period—typically between 20 and 30 days—during which you can pay off that purchase before interest begins to accrue.
Grace periods are powerful because they give you the opportunity to use your credit card as a short but interest-free loan. As long as you pay every penny you charged last month before the due date, you wont pay interest on bjs credit card purchases.
Sooner or later, however, many people do not pay their credit card balance in full each month, turning their credit card into a revolving credit line. Finance charges (interest) then accumulate on the unpaid credit card balance each month.
Best case, a little bjs credit card debt costs a few hundred dollars in interest before you escape. Worst case, you depend more and more on credit cards to keep pace with damage caused by using them in the first place. Failure to make payments makes your credit score plummet. You have trouble getting a car loan or an apartment lease. You might even end up in bankruptcy.
Ultimately, it ends nowhere good.
For all the above reasons, young adults today approach credit cards with extreme caution. In fact, a recent Bankrate study made the surprising discovery that only about one-third of millennials take part in what is commonplace for the majority of people in the over-30 crowd.
Yet, equating credit cards with debt can make you miss out on certain benefits. A bjs credit card can be an important financial tool that makes life easier and helps you improve your credit rating — all without costing you a dime.
Of course, sometimes the opposite is true. We all know someone (me) who got into big trouble by using credit cards the wrong way.
How bjs credit card companies make (lots of) money
The bjs credit card companies earn a little bit of money every time you use your card because they charge stores one to three percent of your purchase—called an interchange fee—to accept the card. This is how they can afford to pay back rewards on every $1 you spend—theyre just giving you a rebate of their own fees.
But the banks earn the biggest dollars by charging interest when you carry a balance—in other words, you dont pay off your purchases in full at the end of the month.
Credit cards typically charge interest rates between 10 and 30 percent. So, with interest at a 15 percent annual percentage rate (APR), if you charge $500 to your card that you dont pay off for a year, youll end up paying the bank $75 in interest. If you owe $5,000 thats $750 a year in interest. Charge $50,000 and youll pay $7,500 a year just in interest!
The minimum payment trap
The worst part is that credit card companies make it easy to get into this situation by only requiring you pay a small minimum payment each month, usually between two and five percent of your balance. So until you hit your cards credit limit—the most the bank will let you borrow—its very easy to charge a large balance thats difficult or impossible for you to pay off.
If youre in this situation, you may be able to do a balance transfer in which you transfer your balances to new credit card that has a 0 percent APR for the first few months. This is a tool credit card companies use to get you to switch from one card to another—of course they hope that you will continue to pay them interest after the promotional 0 percent APR expires.
Whatever you do, if you get stuck with a credit card balance you cant immediately pay off, you need to make and follow a plan for getting out of debt like I did
Track your bjs credit card discretionary spending
A bjs credit card can become a cash flow tool to help you manage monthly spending. With most of your expenses on one card, you can easily see your total spent to date by viewing your account online. You can also check your discretionary spending and see if youre having a good month or if you need to slow down on purchases.
Often you can view spending categories as well, since most credit card companies automatically categorize your spending for you. The categories help you identify areas where your money went, such as food, gasoline or clothing. This can be useful for budgeting and preparing your taxes if some purchases are deductible.
Combined with a Bank Account Buffer, emergency fund and good cash flow management, using a credit card can simplify your daily life because you dont need to obsess about your checking account balance on a daily basis. Yes, youll want to know the maximum you can spend on your credit card each month, but if your checking account is low because tomorrow is payday and you must make a big purchase today, you can use a credit card without worrying about overdrawing your account and incurring a $40 fee.
This is a danger zone, however. The difference between credit cards helping or harming your cash flow is the discipline to set a spending limit.