"I can't wait to get
a credit card. It will be cool
to buy whatever I want, whenever I want." Look out - that kind
of thinking will get you into trouble! A lot of people think that credit cards
are "magic money." But a credit
card is just a financial tool that lets you borrow money, which
you have to pay back.
important to know what you're doing with a credit card. If you use it
credit. See other good
reasons to have a credit card, too.
How Credit Cards Work
When you use a credit card, you are borrowing
from the credit card company to pay for your purchase. The company
will send you a bill once a month showing everything you charged.
On that bill, the credit card company lets you choose
whether to pay the full amount back at once, or just pay part and carry
a balance over to the next month. If you do that, you will
have to pay interest on
that amount next month. Your credit card will have an annual interest
rate, such as 15%.
The fact that most credit cards let you roll
over your balance from month
month can be convenient, but it's not in your best interest. Why:
The Best Way to Use a Credit Card Is...
Rolling over the amount you
owe can quickly add up. It's
tempting to put off paying the full amount till next month. But you
next month, either. Plus, then the amount will have gotten
bigger, with the added interest and anything else you charged in
Paying interest makes everything
you buy more expensive. If your credit card has a
19% interest rate, then you are paying 19% MORE for everything.
Paying only the minimum payment can dangerous. Most
credit cards require only a tiny "minimum payment" each
month, about 2% of what you owe. If you only make the minimum
it will take YEARS to pay your balance off.
|For example, if you buy a mountain bike for $1,000 with a credit
card charging 18% interest, and only make the minimum payment
each month, it will take you 12 years and 9 months to
pay it off and you will pay $2,115 for that $1,000 bike!
Charge only as much as you can afford to pay back every
You won't have to pay any interest...
You won't build up a big debt... AND
You'll build a good credit record.
When you're ready to get a credit card, don't just pick the first one
that sends you an offer. Here's how to compare them, and some alternatives
to credit cards.
more valuable information on getting credit, credit reports, credit
scams, identity theft, and credit FAQs, see the Federal Trade Commission's