The consumer can use a credit card if he applies for a so-called revolving credit card. Revolving credit cards significantly increase the financial scope, but also extremely run the risk of falling into debt.
What are Revolving Credit Cards?
Revolving credit cards are credit cards with a credit line with the installment facility activated. In practice, this is an intermediate thing between an installment loan and a overdraft facility. The credit line applies for a certain amount X.
This can be used in whole or in part, but does not have to be paid in full at the end of the month. Most of the time, credit card issuers agree a certain minimum amount in absolute terms, for example 30 USD and / or a certain percentage of the turnover that has to be repaid. Credit with a credit card is practical but also a dangerous matter, as the example shows.
An example of credit card credit
The credit line is 7,000 USD. A cardholder uses his credit card and had sales of 950 USD at the end of the month. Now he must either repay the minimum amount by day X or 3% of 950 USD. He repays 50 USD. As a credit line, he now has 6,100 USD, which may be used in the following month. The cardholder generates sales of 1,200 USD in the following month and repays only 50 USD at the end of the month. The new credit line will then be 4,950 USD.
This game can be continued indefinitely until the frame is exhausted. The whole thing is of course not free. Credit card is a little more expensive than the most expensive overdraft facility. Interest rates of 20% are not uncommon. If you only make the minimum repayment, you will not be able to repay the loan, even if no card transactions are made, because the monthly interest is higher than the repayment amount.
Consumer advocates also warn of revolving credit cards, which have already driven millions of Americans into debt in America.