by Joseph Kenny | 11/4/08

Credit cards may seem simple on the surface. You obtain a card, you make your payments every month to cover what you bought using it, you clear your balance on time, and that's it. It's a basic idea that seems to take care of itself when handled in a responsible manner, but the issue of credit cards is not always so cut and dry.

Even if the basic idea behind credit cards seems identical from one example to the next, the differences between cards and the companies that issue them can be like night and day. The reality of having a card means that you have to sign into certain terms and conditions, and the companies that issue cards don't always make it clear what you're getting into. Indeed, the policies that govern cards can be quite obtuse, making cards something of a tricky problem if handled inappropriately.

The problem though is that handling a credit card is not always as simple as what it seems. Some companies apply annual charges for simply having the card. Others require you to maintain a spending level of spending each month. There are also cards that penalize you with interest rates that change based on carrying over balances from one month to the next.

There are multiple things to consider when having a card, and the problem is not always clear. The essential principle behind terms and conditions are the same between companies, however. Cards are a form of credit that operate by giving you a loan, and as such the companies that issue them put you in debt to them every time you make a purchase. Furthermore, your purchases are given an extra expense that comes from the fees card companies charge you for having the card or using one.

What this means is that card companies simply profit by having you in debt. If you realize this in regards to your credit card, you can develop perspective on their policies and the terms that apply to individual card types. They all basically make their companies money by taking it away from you. It's not a bad thing in itself, but it illustrates the reality that credit cards aren't free money, and as such they have to be respected like an investment.