Credit Cards

There are very many misconceptions about credit cards. They’re not magic wands or instant cash; you have to pay it back. And the types of credit cards available vary: interest rate, yearly fees, payment grace time, calculation of interest, etc. It’s a lot of jargon. Basically, you need to choose a credit card that fits your needs, not just fill out an application mailed to you or given out at school.

Paying on Time

If you don’t pay your credit cards on time, your credit can literally be frozen in time. Meaning: they cancel your account until you pay everything back. And, while they still charge monthly interest, it’s all the more difficult to catch up. And if you charge over the limit on your card, you will get an addition fee added to your card for each month that it is over that limit.

Interest is one of the most important concepts to understand as it relates to money, period. Interest can go both ways in terms of who’s borrowing and who’s lending. When you take out a loan, the interest could be considered a charge by the lender for lending you money. Lenders are investing in your potential to pay off the loan: for their services, they get a fee from you (the return). To simplify the process, lenders use an interest rate to calculate your payment. This includes the payment towards the original loan amount and the interest they require.

When you save money into things like a mutual fund, CD’s, or stocks, you expect a return on your investment. We choose that investment based on the prior “performance” record of that investment much like a lender/creditor looks at our past performance.

Paying Against Debt

Not being able to pay your credit cards on time can become a very big problem. The debt will continue to add up, fees will be added and it can become an uphill battle. Pay. On. Time

Your car is an asset that the lender can take if you can’t pay the advance. The interest rate, annually, can be up to 300%. Insane.

If you don’t feel safe getting a credit card, but find that a credit card is useful to make to rent cars, purchase things online, consider a debit card. A debit card is like a credit card, but works more like a checkbook–you can use it to make purchases in most places. You’re not borrowing the money, you are using your own money in your checking account. Be careful to always write that transaction into your checkbook!

Keyterms

Interest: the return earned on an investment.

Interest Rate: A rate which is charged or paid for the use of money. An interest rate is often expressed as an annual percentage of the principal.

Statistics

According to a major study, 69% of those who filed for bankruptcy said credit-card debt caused them to file.

More than 80% of graduating college seniors have credit-card debt before they even find work… now add that to student loans!

19% of the people who filed for bankruptcy were college students.

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