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CREDIT 101
Credit is borrowing.
When you use a credit card, it is really the same as a loan. The credit card company is letting you borrow their money, and they will charge you a finance charge at an annual percentage rate that is determined by your credit history of managing money. So if you are young, in your first job and still going to school, you have to expect a high rate.
Credit cards offer convenience. And face it; it can buy you some time to get out of a jam. When your car needs $300 of repairs and you need it to get to work, having a credit card can be a lifesaver. But as soon as you drive the car out of the mechanic’s garage you better have a plan in mind to pay off the debt. It can add up to trouble before you know it.
Credit cards are NOT debit cards. To learn more check out How Banks Work.
It’s the convenience.
The problem with credit cards is that they are so easy to use. When faced with an emotional purchase – I just have to get those cool shoes – it is easy to tell yourself you deserve the shoes.
If you are tight for cash and the purchases seem small you might not think it is a big deal. But 30 days is a long time and when the bill comes and you see what you have done, it can be painful. See how easy it is:
That pair of shoes you just couldn't pass up. $89
The night you were dying for pizza and had no cash. $24
A new JumpDrive: it’s time to upgrade. $48
Well you are now $161 in debt. If you did not have the cash at the time of these purchases, why did you think next month would be any different? Now you will have added finance charges to pay.
Establishing a Good Credit History
Credit cards are not all bad! If you use the card and plan to pay off your balance each month, you can establish a credit history that will pay off big time in the future. Learn more about credit reports and why they are important. |
