Credit Card
Whether you know, or just think you know, what a credit card is, this bit of plastic can wreak havoc on your financial future if used unwisely. Credit cards (usually issued by banks) are frequently and heavily marketed to college students, in order to hook people early. Credit cards could be called loan cards or debt cards, because credit is the same thing as debt. But loan cards would discourage people from using them. So they’re called credit cards. But, don’t be fooled. When you use a credit card, you are taking out a small, and expensive loan.
You can use a credit card to pay for most things: food, beer, vacations, clothes (even student loans... which is a bad idea... using expensive debt to pay for other debt). All you have to do is bring the item you want to buy to the (real or virtual) checkout spot and present your card. You know the drill, you slide the card through a little slot thingie, sign your name or something close to it, and voila! You own new stuff! You’ll get bills from the card company, but the amount you have to pay is so small that it doesn’t seem like such a big deal.
But it is, or can be. The interest rate you are charged is usually extremely high, like 20% or more, per year. No biggie, you say? Think of it this way, if you buy something for, say $1,000 and take a long time to pay it off, say five years. The total cost to you could be close to $2,000, that’s double what you paid! Half to the retailer who first sold it to you and half in interest payments to the credit card company. Do this with many of your purchases, over many years, and your life is much much more expensive than you might think. If you don’t believe us, learn how to calculate compound interest and convince yourself!
Oh, yeah, and we haven’t even mentioned the impact of all the sneaky fees and interest rate increases that the credit card companies hit you with. There are a lot of them, for things like annual fees, “insurance,” late fees and penalties, etc.
The bottom line with credit cards is that if you use one (and, you don’t have to!), use it rarely and pay it off quickly. Keep a zero balance as often as you can. Don’t worry about the argument that “you need to build up your credit history (a topic addressed below). There are many ways to do that.
Finally, if you don’t keep up with credit card payments, you will do a lot of damage to that credit history. So be frugal and careful. Open your bills and pay them on time! Nuff said.
Go back to the Glossary page or go Home.
Whether you know, or just think you know, what a credit card is, this bit of plastic can wreak havoc on your financial future if used unwisely. Credit cards (usually issued by banks) are frequently and heavily marketed to college students, in order to hook people early. Credit cards could be called loan cards or debt cards, because credit is the same thing as debt. But loan cards would discourage people from using them. So they’re called credit cards. But, don’t be fooled. When you use a credit card, you are taking out a small, and expensive loan.
You can use a credit card to pay for most things: food, beer, vacations, clothes (even student loans... which is a bad idea... using expensive debt to pay for other debt). All you have to do is bring the item you want to buy to the (real or virtual) checkout spot and present your card. You know the drill, you slide the card through a little slot thingie, sign your name or something close to it, and voila! You own new stuff! You’ll get bills from the card company, but the amount you have to pay is so small that it doesn’t seem like such a big deal.
But it is, or can be. The interest rate you are charged is usually extremely high, like 20% or more, per year. No biggie, you say? Think of it this way, if you buy something for, say $1,000 and take a long time to pay it off, say five years. The total cost to you could be close to $2,000, that’s double what you paid! Half to the retailer who first sold it to you and half in interest payments to the credit card company. Do this with many of your purchases, over many years, and your life is much much more expensive than you might think. If you don’t believe us, learn how to calculate compound interest and convince yourself!
Oh, yeah, and we haven’t even mentioned the impact of all the sneaky fees and interest rate increases that the credit card companies hit you with. There are a lot of them, for things like annual fees, “insurance,” late fees and penalties, etc.
The bottom line with credit cards is that if you use one (and, you don’t have to!), use it rarely and pay it off quickly. Keep a zero balance as often as you can. Don’t worry about the argument that “you need to build up your credit history (a topic addressed below). There are many ways to do that.
Finally, if you don’t keep up with credit card payments, you will do a lot of damage to that credit history. So be frugal and careful. Open your bills and pay them on time! Nuff said.
Go back to the Glossary page or go Home.