The Money Club for Young Adults
Understanding Credit Cards
A credit card allows you to spend money you do not have by taking on debt. You can do this in two ways:
-
by buying goods and services
-
withdrawing cash from a bank machine
The Good:
-
convenience: makes online and in-store purchases a snap. You do not have to carry cash around.
-
interest free loan: as long as you pay off your entire outstanding balance each month.
The Bad:
-
convenience: it is very easy to overspend
-
nosebleed high interest rates (min 20%): you will pay this if you do not pay off your entire balance each month.
Key Takeaways: Two Important Habits To Build
-
to avoid high interest charges pay your entire bill balance on time, every month. Only buy items you can pay for when the bill comes due.
-
avoid taking cash advances on your credit card – interest is charged immediately on these withdrawals.
Exercise: Are you credit savvy?
What is credit? How does it work?
How can I manage debt?
Useful Tips
-
Keep your receipts and compare these to your monthly bill to make sure all charges are correct.
-
Track your spending throughout the month to make sure you don’t go over your limit and that you have the money to pay your bill.
-
Keep your card number, pin and other card information private.
-
Don’t save your card information on online retailer sites, especially if you share a computer.
Minimum Monthly Payment Trap
-
cards ask only for a minimum payment each month (often only 5% of your total balance).
-
the remaining amount will be charged +20% interest.
-
if you carry a $2,000 balance on your credit card you will be charged an additional $400/year.