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Understanding the Credit Cards

By Reshmi Kotla

Having a credit card is almost every teenager’s dream come true, with fantasies of unlimited spending and no restrictions. However, having a credit card is a bigger responsibility than you think. In fact, credit cards are much more than shiny, plastic sources of money and even have some very serious risks associated with them, as well as benefits.

How it works:

A credit card allows you to borrow money from your issuer for a payment or purchase. This card grants you a line of credit, but this is not free money! You must pay back a certain amount or a minimum payment within the“grace period” of around 25 to 30 days. Paying the minimum payment lets you carry a balance from month to month and pay a big purchase off over time. If you fail to pay back this minimum payment, then you have to pay interest fees. If you pay more than the minimum amount or pay the full balance, you avoid interest charges and can save money.

Risks:

You can easily accumulate a lot of debt if you are not careful. Even small debt can quickly become bigger overtime due to additional interest rates. Because credit cards seem so easy and available, many people easily tend to overspend. Failing to pay the minimum payment can also result in a bad credit score, which can hurt you when you need a loan later on in life.

Benefits:

Credit cards allow you to make large transactions now and pay them off in smaller payments overtime. It is also much more convenient and easier than carrying around a huge stack of bills. Many companies have also made credit cards even safer than debit cards by using a built-in fraud protection and providing refunds for fraudulent charges. If all minimum payments are paid on time, you can build up your credit score, which will be very good for you later in life. Just remember, in order to get the full benefits of having a credit card, you must be sure to manage your credit card debt and pay off all bills on time!