Using Your Credit Card

Loans, Student Loans

When you use a credit card, the most important thing is to make sure you live within your means. A credit card allows you to borrow against future earnings, but be sure that you can eventually pay off your debts. You can make a purchase with money you don’t have, and then pay off the debt over time with interest.

Here’s how it works

  • You’re given a credit limit. This is the maximum amount you can borrow. However, you can spend more than that amount in a month if you pay down your debt as you go.
  • At the end of the month, you receive a credit card statement with your outstanding debt. From the time that you get that statement, you have a grace period of 20-30 days to pay that amount without earning interest. This means that you have at least 20-30 days between making the purchase and accruing interest on your debt.
  • Any amount of money that you haven’t paid off by the end of the grace period starts earning interest. There’s a minimum amount that you have to pay each month, but you can choose to pay more so that you accrue less interest in the long run. The minimum payment is usually pretty low (banks like it when you pay interest) so you should try to pay off as much as you can.

Your credit card use today can affect the rest of your life

  • A credit card can help you finance a purchase you otherwise wouldn’t be able to afford. It can also earn rewards on your purchases.
  • Credit cards provide guarantees against fraud or loss. If your card is stolen or if you lose it, you’re not liable for any amount charged after you notify the credit card company. In that way, it’s more secure than cash.
  • They can also help you establish your credit, which can mean lower interest rates on mortgages or other loans down the line.
  • On the other hand, missed payments can set your credit score back, raising interest rates or even disqualifying you altogether.
  • Credit card debt can spiral out of control. As you fall further and further behind, you earn more and more interest, pushing you deeper into debt.

How best to use your credit card

  • Don’t overspend. Don’t overspend. Don’t overspend.
  • Stay abreast of your credit card statements and monitor them closely for fraudulent charges.
  • If you need a large amount of money, consider a bank or credit union loan rather than a credit card. The interest rates might be better.