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How do credit cards work
How does interest work on credit cards if you pay the monthly payment?
22 answers
Updated
Brian’s Answer
The key recommendation is to strive to clear your entire credit card balance each month. If you leave a balance unpaid, you'll face an interest charge, making it more challenging to settle your balance in the future. Essentially, you're incurring a cost to borrow money that might not be readily available to you.
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Jason’s Answer
Here's a friendly piece of advice for you: It's best to only use credit cards if you're able to clear the balance every month. This way, you can enjoy the perks and bonus points without any stress. Remember the old saying, "the borrower is the slave to the lender"? It's a good idea to keep that in mind and do your best to steer clear of credit card debt. After all, it's your hard-earned money, not theirs. Believe it or not, there's a unique sense of mental peace that comes from not owing anyone anything. It might mean living a bit more simply, but it's totally worth it!
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Saloni’s Answer
The biggest advice here is to
1. Credit Limit: Every card has a limit on how much you can borrow. Don’t go over this limit.
2. Interest Rates:If you don’t pay the full amount, you’ll be charged extra money called interest. Check the interest rates before using the card.
3. Monthly Statements: Keep an eye on your monthly statements to track your spending and ensure accuracy.
4. Due Dates: Pay your credit card bill on time to avoid late fees and negative impacts on your credit score.
5. Credit Score: Your credit card usage affects your credit score. Responsible use can build a good credit history.
6. Security: Keep your card information safe to prevent unauthorized use. Report any lost or stolen cards immediately.
7. Rewards and Perks: Some cards offer rewards or perks for using them. Understand these benefits and use them wisely.
8. Emergency Fund: Don’t rely solely on credit. Build an emergency fund for unexpected expenses.
9. Comparison Shopping: Before getting a card, compare different options. Look for low fees and favorable terms.
10. Financial Responsibility: Understand that a credit card is a financial responsibility. Using it wisely can help you in the future, but misusing it can lead to debt.
1. Credit Limit: Every card has a limit on how much you can borrow. Don’t go over this limit.
2. Interest Rates:If you don’t pay the full amount, you’ll be charged extra money called interest. Check the interest rates before using the card.
3. Monthly Statements: Keep an eye on your monthly statements to track your spending and ensure accuracy.
4. Due Dates: Pay your credit card bill on time to avoid late fees and negative impacts on your credit score.
5. Credit Score: Your credit card usage affects your credit score. Responsible use can build a good credit history.
6. Security: Keep your card information safe to prevent unauthorized use. Report any lost or stolen cards immediately.
7. Rewards and Perks: Some cards offer rewards or perks for using them. Understand these benefits and use them wisely.
8. Emergency Fund: Don’t rely solely on credit. Build an emergency fund for unexpected expenses.
9. Comparison Shopping: Before getting a card, compare different options. Look for low fees and favorable terms.
10. Financial Responsibility: Understand that a credit card is a financial responsibility. Using it wisely can help you in the future, but misusing it can lead to debt.
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Logan’s Answer
A credit card is a tool allowing you to make purchases on borrowed money, up to a limit. Each month, you receive a statement summarizing your transactions. If you pay the full amount by the due date, there's no interest. Otherwise, the remaining balance incurs monthly interest, known as the Annual Percentage Rate (APR). Paying more than the minimum can reduce interest charges. Responsible use is crucial for avoiding high debt and maintaining a positive credit history.
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Azra’s Answer
Credit cards serve a variety of purposes, and their use is largely dependent on the individual's personal needs and preferences. Some people use credit cards primarily to reap the rewards they offer, such as points for air travel or cash back on daily purchases. Others keep credit cards on hand for emergency situations, like unexpected car repairs.
If you manage to pay off your monthly expenditure, you won't be charged any interest. However, if you're unable to clear the balance, you'll be subject to the interest rate stipulated by your credit card agreement.
If you manage to pay off your monthly expenditure, you won't be charged any interest. However, if you're unable to clear the balance, you'll be subject to the interest rate stipulated by your credit card agreement.
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Ben’s Answer
Credit cards can significantly contribute to shaping your financial future! But, if misused, they can trap you in a cycle of high-interest debt that's hard to escape. So, when you get a credit card, it's crucial to pay the full balance each billing cycle to avoid any interest charges. Think of it as a debit card - don't spend more than what you have. For more detailed advice on credit cards, consider looking into The Money Guys or Graham Stephen.
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John’s Answer
Everyone here has had great responses. Make sure to be cautious about running a balance that you can't payoff each month.
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Aditi’s Answer
If you pay the credit card minimum payment, you won't have to pay a late fee. But you'll still have to pay interest on the balance you didn't pay, and borrowing on a credit card results in a very high rate of interest.
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Prajwal Prakash’s Answer
A credit card is a handy tool that allows you to purchase items even if you don't have the cash on hand at that precise moment. Here's a simple breakdown of how it works:
Obtaining Your Card:
Once you reach the age of 18, you can request a credit card from a bank. If they deem you trustworthy, they'll issue you a card with a specific spending limit. This limit is essentially the maximum amount you can charge to your card.
Making Purchases:
Imagine you want to buy a new video game. You bring your card to the store, and when you're ready to purchase the game, you hand your amazing card to the cashier. The card covers the cost of the game, and you get to take it home with you.
Repaying the Debt:
Here's the crucial part: the game isn't free. You must repay the money you borrowed with your amazing card. Each month, the bank sends you a statement detailing all your card purchases and the total amount you owe.
Minimum Payment:
You're not required to repay the entire amount at once. However, you must make at least a small payment, known as the "minimum payment," by a specific due date. It's akin to completing your homework regularly.
Interest:
If you don't repay the full amount, the bank may charge you additional money, known as "interest." It's a small charge for borrowing the money. So, it's wise to repay the full amount on time to avoid this extra cost.
Rewards:
One fun aspect of your card is that some cards offer special rewards. You might earn points for every purchase, which you can later redeem for toys, gift cards, or other exciting items.
Being Responsible:
It's crucial to use your amazing card responsibly. Only purchase items you can comfortably repay, and always make your payments on time. This way, you can continue to use your card wisely.
In conclusion, a credit card is a fantastic tool that allows you to purchase items even if you don't have the cash immediately available. However, you must be responsible and repay your debt to continue using your amazing card wisely.
Obtaining Your Card:
Once you reach the age of 18, you can request a credit card from a bank. If they deem you trustworthy, they'll issue you a card with a specific spending limit. This limit is essentially the maximum amount you can charge to your card.
Making Purchases:
Imagine you want to buy a new video game. You bring your card to the store, and when you're ready to purchase the game, you hand your amazing card to the cashier. The card covers the cost of the game, and you get to take it home with you.
Repaying the Debt:
Here's the crucial part: the game isn't free. You must repay the money you borrowed with your amazing card. Each month, the bank sends you a statement detailing all your card purchases and the total amount you owe.
Minimum Payment:
You're not required to repay the entire amount at once. However, you must make at least a small payment, known as the "minimum payment," by a specific due date. It's akin to completing your homework regularly.
Interest:
If you don't repay the full amount, the bank may charge you additional money, known as "interest." It's a small charge for borrowing the money. So, it's wise to repay the full amount on time to avoid this extra cost.
Rewards:
One fun aspect of your card is that some cards offer special rewards. You might earn points for every purchase, which you can later redeem for toys, gift cards, or other exciting items.
Being Responsible:
It's crucial to use your amazing card responsibly. Only purchase items you can comfortably repay, and always make your payments on time. This way, you can continue to use your card wisely.
In conclusion, a credit card is a fantastic tool that allows you to purchase items even if you don't have the cash immediately available. However, you must be responsible and repay your debt to continue using your amazing card wisely.
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T’s Answer
Credit cards are financial tools that allow users to make purchases on credit, essentially borrowing money from a financial institution up to a predetermined credit limit. Here's a basic overview of how credit cards work:
Application and Approval:
To obtain a credit card, an individual must apply for one through a bank or credit card issuer.
The application typically involves providing personal and financial information, and the issuer evaluates the applicant's creditworthiness based on factors such as credit history, income, and debt.
Credit Limit:
Once approved, the cardholder is assigned a credit limit. This is the maximum amount of money they can borrow on the card.
The credit limit is determined by the issuer and is influenced by the individual's creditworthiness.
Making Purchases:
Cardholders can use the credit card to make purchases at merchants that accept that particular card.
When making a purchase, the cardholder is essentially borrowing money from the credit card issuer to pay for the transaction.
Billing Cycle:
Credit cards operate on billing cycles, usually monthly. During this period, the cardholder can make multiple purchases.
At the end of the billing cycle, the cardholder receives a statement detailing all transactions made during that period.
Minimum Payment:
The cardholder is required to make a minimum payment by the due date mentioned in the statement.
The minimum payment is a percentage of the total outstanding balance, usually around 2-3%.
Interest and APR:
If the cardholder doesn't pay the full outstanding balance by the due date, interest is charged on the remaining balance.
The interest rate is expressed as an Annual Percentage Rate (APR), and it varies based on the credit card terms and the individual's creditworthiness.
Credit Score Impact:
How responsibly a cardholder manages their credit card, including making payments on time, affects their credit score.
A good credit score can lead to better credit card offers and terms in the future.
It's important for cardholders to manage their credit responsibly, pay attention to interest rates and fees, and strive to pay their balance in full each month to avoid accumulating debt and interest charges.
Application and Approval:
To obtain a credit card, an individual must apply for one through a bank or credit card issuer.
The application typically involves providing personal and financial information, and the issuer evaluates the applicant's creditworthiness based on factors such as credit history, income, and debt.
Credit Limit:
Once approved, the cardholder is assigned a credit limit. This is the maximum amount of money they can borrow on the card.
The credit limit is determined by the issuer and is influenced by the individual's creditworthiness.
Making Purchases:
Cardholders can use the credit card to make purchases at merchants that accept that particular card.
When making a purchase, the cardholder is essentially borrowing money from the credit card issuer to pay for the transaction.
Billing Cycle:
Credit cards operate on billing cycles, usually monthly. During this period, the cardholder can make multiple purchases.
At the end of the billing cycle, the cardholder receives a statement detailing all transactions made during that period.
Minimum Payment:
The cardholder is required to make a minimum payment by the due date mentioned in the statement.
The minimum payment is a percentage of the total outstanding balance, usually around 2-3%.
Interest and APR:
If the cardholder doesn't pay the full outstanding balance by the due date, interest is charged on the remaining balance.
The interest rate is expressed as an Annual Percentage Rate (APR), and it varies based on the credit card terms and the individual's creditworthiness.
Credit Score Impact:
How responsibly a cardholder manages their credit card, including making payments on time, affects their credit score.
A good credit score can lead to better credit card offers and terms in the future.
It's important for cardholders to manage their credit responsibly, pay attention to interest rates and fees, and strive to pay their balance in full each month to avoid accumulating debt and interest charges.
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Mauricio’s Answer
A Credit Card is a payment tool necessary for the actual economy, but you must be very careful and use it responsibly!!! I can not highlight enough the importance of using responsibly the Credit Cards. You have to analyze the payment capability that you have and make sure that you use the Credit Card accordingly.
It is used to make payments on most of commercial establishments, also for online payments. On a monthly basis you will receive a statement including all the purchases you did and it will tell you when is the payment deadline.
AT the deadline you can pay the full amount of all payments done during the month (the most recommended way of using it)
Sometimes we are not able to pay the full amount of purchases of the month and in that case the bank will charge you interest on your purchases, hence the need to use it responsibly!!!
I have seen cases when Credit Cards not being paid and interests can grow as much as the total amount of purchases, if not more!! If not paid it will set a bad record on your payment history and will cause you have problems at the time of borrowing money from a bank or another type of institution
Hope this answer is helpful to you!!
Use C Cards responsibly!
It is used to make payments on most of commercial establishments, also for online payments. On a monthly basis you will receive a statement including all the purchases you did and it will tell you when is the payment deadline.
AT the deadline you can pay the full amount of all payments done during the month (the most recommended way of using it)
Sometimes we are not able to pay the full amount of purchases of the month and in that case the bank will charge you interest on your purchases, hence the need to use it responsibly!!!
I have seen cases when Credit Cards not being paid and interests can grow as much as the total amount of purchases, if not more!! If not paid it will set a bad record on your payment history and will cause you have problems at the time of borrowing money from a bank or another type of institution
Hope this answer is helpful to you!!
Mauricio recommends the following next steps:
Updated
Rhett’s Answer
Excellent query! Credit cards might seem daunting and complex, but they can also serve as a valuable resource for instilling financial responsibility and enhancing your credit rating.
Every time you use a credit card, the bank you're associated with logs all the transactions and provides you with a specific timeframe to repay the amount you've spent. Essentially, you're borrowing money from the credit card company which you're obligated to pay back. If you fail to make a payment, the interest rate comes into play. For instance, if your credit card has a 20% interest rate and you have an outstanding balance of $100 and miss a payment, you'll incur a $20 interest charge on the overdue payment.
It's advisable to use your credit card as if it were a debit card, meaning you should aim to pay off the entire amount as promptly as possible. I strongly recommend researching from trustworthy sources and seeking advice from your parents as well. Wishing you all the best!
Every time you use a credit card, the bank you're associated with logs all the transactions and provides you with a specific timeframe to repay the amount you've spent. Essentially, you're borrowing money from the credit card company which you're obligated to pay back. If you fail to make a payment, the interest rate comes into play. For instance, if your credit card has a 20% interest rate and you have an outstanding balance of $100 and miss a payment, you'll incur a $20 interest charge on the overdue payment.
It's advisable to use your credit card as if it were a debit card, meaning you should aim to pay off the entire amount as promptly as possible. I strongly recommend researching from trustworthy sources and seeking advice from your parents as well. Wishing you all the best!
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Patrick’s Answer
Mateo, is an interesting one coming from a student, and I wish more young people would ask it. Understanding how credit cards work is vital for managing your finances responsibly.
When you use a credit card, you're borrowing money up to a certain limit, which is determined by factors like your credit history and monthly income. Each credit card has a billing cycle, which is the period during which your transactions are recorded. At the end of this cycle, you'll receive a statement showing all your transactions and the total amount you owe.
It's important to know that if you pay your full statement balance by the due date, you won't be charged any interest. This is known as the grace period. However, if you carry a balance from one cycle to the next, you will be charged interest. This interest is usually expressed as an annual percentage rate (APR) and is calculated daily based on your remaining balance. For instance, my 25-year-old son's first credit card has an APR of 11%, meaning the credit card company uses this rate to calculate the interest he owes on his balance.
Remember, only making the minimum payment can lead to higher interest charges and a longer payoff period. To keep costs down, it's best to pay your full statement balance by the due date. Using a credit card responsibly means understanding these terms, keeping an eye on interest rates, and aiming to pay off your balance in full each month to avoid extra charges. For example, if my son bought something for $100 and only paid the minimum $20, he ended up paying nearly $180 in the end because of interest.
I hope this explanation gives you a clearer understanding of how to use a credit card wisely.
When you use a credit card, you're borrowing money up to a certain limit, which is determined by factors like your credit history and monthly income. Each credit card has a billing cycle, which is the period during which your transactions are recorded. At the end of this cycle, you'll receive a statement showing all your transactions and the total amount you owe.
It's important to know that if you pay your full statement balance by the due date, you won't be charged any interest. This is known as the grace period. However, if you carry a balance from one cycle to the next, you will be charged interest. This interest is usually expressed as an annual percentage rate (APR) and is calculated daily based on your remaining balance. For instance, my 25-year-old son's first credit card has an APR of 11%, meaning the credit card company uses this rate to calculate the interest he owes on his balance.
Remember, only making the minimum payment can lead to higher interest charges and a longer payoff period. To keep costs down, it's best to pay your full statement balance by the due date. Using a credit card responsibly means understanding these terms, keeping an eye on interest rates, and aiming to pay off your balance in full each month to avoid extra charges. For example, if my son bought something for $100 and only paid the minimum $20, he ended up paying nearly $180 in the end because of interest.
I hope this explanation gives you a clearer understanding of how to use a credit card wisely.
Updated
Kim’s Answer
Mateo,
If you pay only the minimum monthly payment, and continue to charge on the card, eventually your balance grows higher and higher, and the amount of interest you pay grows higher and higher, and they have you hooked for all eternity! For real. Interest is charged on the unpaid balance.
To safely use credit cards, you use them only as a convenience and pay the balance in full each month. There are some cards that pay "cash back" for purchases. Mine pays 2% cash back for everything. HEB has a debit card that pays 5% cash back for purchase of HEB brand products. That's a good deal!
The problem is, when you are just starting out in life you don't have this magical "emergency fund" the experts want you to have. That is a savings account to cover 3-6 months of your expenses, in case you get sick, lose your job, need a major car repair, etc. The idea is that you use your own money, interest free, and pay it back over time. But, you probably aren't there yet. So, many people default to charging purchases and paying them back over time. If you use a card for only true emergency expenses, you should be able to control it. But, that doesn't include things like concert tickets - just real emergencies.
There is another option. There is a card called CARE CREDIT which you can use for vet bills, dr bills, etc., and may be able to make payments over time without paying any interest. You can also do that with furniture purchases. Any time you can avoid interest, it's best to do so!
Another option is to have an established bank or credit union account. You should be able to get a small personal loan for about 10% (current rates). The credit union also has good rates on Christmas loans, about 7% last year. But you need to pay loans back, usually over a year or two, unless it's a real big loan.
Obviously, it is best to go through life only buying what you can afford, and delaying the purchase of any "wants" until you can afford to pay for them. The more you can embrace that philosophy, the easier money management will become. Yes, there will still be emergencies - but you will learn how to handle them, over time.
It's good that you are asking this question. Please feel free to ask any follow up questions!
If you pay only the minimum monthly payment, and continue to charge on the card, eventually your balance grows higher and higher, and the amount of interest you pay grows higher and higher, and they have you hooked for all eternity! For real. Interest is charged on the unpaid balance.
To safely use credit cards, you use them only as a convenience and pay the balance in full each month. There are some cards that pay "cash back" for purchases. Mine pays 2% cash back for everything. HEB has a debit card that pays 5% cash back for purchase of HEB brand products. That's a good deal!
The problem is, when you are just starting out in life you don't have this magical "emergency fund" the experts want you to have. That is a savings account to cover 3-6 months of your expenses, in case you get sick, lose your job, need a major car repair, etc. The idea is that you use your own money, interest free, and pay it back over time. But, you probably aren't there yet. So, many people default to charging purchases and paying them back over time. If you use a card for only true emergency expenses, you should be able to control it. But, that doesn't include things like concert tickets - just real emergencies.
There is another option. There is a card called CARE CREDIT which you can use for vet bills, dr bills, etc., and may be able to make payments over time without paying any interest. You can also do that with furniture purchases. Any time you can avoid interest, it's best to do so!
Another option is to have an established bank or credit union account. You should be able to get a small personal loan for about 10% (current rates). The credit union also has good rates on Christmas loans, about 7% last year. But you need to pay loans back, usually over a year or two, unless it's a real big loan.
Obviously, it is best to go through life only buying what you can afford, and delaying the purchase of any "wants" until you can afford to pay for them. The more you can embrace that philosophy, the easier money management will become. Yes, there will still be emergencies - but you will learn how to handle them, over time.
It's good that you are asking this question. Please feel free to ask any follow up questions!
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Mark’s Answer
Credit cards can be a useful tool for building credit for when you might need it, such as for a car or home purchase. But credit card interest can be very expensive. So it's best to not incur interest if you can avoid it.
So how does a credit card work? Let's use an example.
You need a new pair of jeans. So you go to Abercrombie & Fitch and find a pair that fit you. You use a credit card to purchase the jeans. The credit card company pays Abercrombie (slightly less than you paid for the jeans) and you now owe the credit card company. In a couple of weeks, you get a statement from the credit card company that shows that you owe them $75. You will typically have 3-4 weeks from when you get the bill to pay it. Look closely at your statement. It should tell you the total amount due, the minimum amount due, and the payment due date. If you pay it in full, meaning you pay everything that is owed ($75, not just the minimum payment) by the payment due date, you will not owe any interest on your purchase.
However, if you pay less than the full amount (let's say, $50), you will owe interest on what you don't pay (in this case, $25). That interest becomes part of your payment due for the next statement, and if you don't pay that amount in full, you will owe even more interest.
So it is best to pay the full amount on your credit card statement every month to avoid interest charges. This means not charging things that you cannot afford to pay for.
And please don't think about paying late. Paying the minimum is better than not paying at all. Missing or making a late payment can incur significant fees, which get added to your balance and you'll end up owing much more than you expected.
There are all kinds of repercussions to missing or making late payments that can make it hard (or more expensive) to borrow money in the future.
So how does a credit card work? Let's use an example.
You need a new pair of jeans. So you go to Abercrombie & Fitch and find a pair that fit you. You use a credit card to purchase the jeans. The credit card company pays Abercrombie (slightly less than you paid for the jeans) and you now owe the credit card company. In a couple of weeks, you get a statement from the credit card company that shows that you owe them $75. You will typically have 3-4 weeks from when you get the bill to pay it. Look closely at your statement. It should tell you the total amount due, the minimum amount due, and the payment due date. If you pay it in full, meaning you pay everything that is owed ($75, not just the minimum payment) by the payment due date, you will not owe any interest on your purchase.
However, if you pay less than the full amount (let's say, $50), you will owe interest on what you don't pay (in this case, $25). That interest becomes part of your payment due for the next statement, and if you don't pay that amount in full, you will owe even more interest.
So it is best to pay the full amount on your credit card statement every month to avoid interest charges. This means not charging things that you cannot afford to pay for.
And please don't think about paying late. Paying the minimum is better than not paying at all. Missing or making a late payment can incur significant fees, which get added to your balance and you'll end up owing much more than you expected.
There are all kinds of repercussions to missing or making late payments that can make it hard (or more expensive) to borrow money in the future.
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Justin’s Answer
Hi Mateo,
This is such an important question you are asking. It is important to start building credit as soon as you can. Once you have a savings or checking account with funds built up I would suggest getting a credit card.
The way a credit card works is you aren't paying the money directly when you purchase something. The expenses you make on the credit card build up over time and then at the end of the period (usually monthly) you pay all of the expenses off at once. I would recommend using this system instead of a debit card (where you pay immediately), because it helps you build credit. Using your credit card and paying off your expenses in time helps you build a good credit score. A good credit score is beneficial for the future as it makes it easier for you to take out loans in the future. Possible reasons for taking out a loan would be to buy a car, buy a house, or start a business. With a poor credit score, it will be tough to get awarded a loan for these investments. You can also enroll in some specific credit cards plans that give you cash back on some of your purchases. For example, I get 3% of my payment back when I buy gas for my car. These rewards add up over time and can be very beneficial. Find a credit card plan that has benefits like this.
In regards to interest payments, if you pay your credit card statements on time you will not pay interest. As you build up more debt and can't pay it off, the bank will add interest to the debt you owe, increases the amount you must pay off. Make sure that you are paying off your monthly statements on time so that you don't get charged any interest. If you know you won't have enough money at the end of the month to pay for this certain thing you want, then DO NOT BUY IT.
This is such an important question you are asking. It is important to start building credit as soon as you can. Once you have a savings or checking account with funds built up I would suggest getting a credit card.
The way a credit card works is you aren't paying the money directly when you purchase something. The expenses you make on the credit card build up over time and then at the end of the period (usually monthly) you pay all of the expenses off at once. I would recommend using this system instead of a debit card (where you pay immediately), because it helps you build credit. Using your credit card and paying off your expenses in time helps you build a good credit score. A good credit score is beneficial for the future as it makes it easier for you to take out loans in the future. Possible reasons for taking out a loan would be to buy a car, buy a house, or start a business. With a poor credit score, it will be tough to get awarded a loan for these investments. You can also enroll in some specific credit cards plans that give you cash back on some of your purchases. For example, I get 3% of my payment back when I buy gas for my car. These rewards add up over time and can be very beneficial. Find a credit card plan that has benefits like this.
In regards to interest payments, if you pay your credit card statements on time you will not pay interest. As you build up more debt and can't pay it off, the bank will add interest to the debt you owe, increases the amount you must pay off. Make sure that you are paying off your monthly statements on time so that you don't get charged any interest. If you know you won't have enough money at the end of the month to pay for this certain thing you want, then DO NOT BUY IT.
Ribhav Kansal
Banking, Regulatory, Risk, Reporting, Data Analysis, Data governance
3
Answers
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Ribhav’s Answer
Credit card gives you flexibility to make payments when used constructively. It is advisable to pay in full during your payment cycle usually 40 - 50 days. In case full payment cannot be made within due date, ensure minimum amount due is paid to avoid interest and late fee. In most cases, interest is accrued on daily basis and creates a huge outstanding over a period of time. Always ensure to read key highlights of terms and conditions to understand your credit card facilities. As a thumb rule, check your outstanding/ statement every weekend to track, monitor and manage your spend.
James Constantine Frangos
Consultant Dietitian & Software Developer since 1972 => Nutrition Education => Health & Longevity => Self-Actualization.
6308
Answers
Updated
James Constantine’s Answer
Hello Mateo,
How do credit cards work?
Credit cards work by allowing cardholders to borrow money from the issuing bank up to a predetermined limit, known as the credit limit. When a purchase is made using a credit card, the cardholder is essentially borrowing money from the bank to pay for the item or service. The cardholder is then required to repay the borrowed amount, plus any applicable fees and interest, over a specified period.
The process of using a credit card typically involves the following steps:
Application: The cardholder applies for a credit card by providing their personal and financial information to the issuing bank. The bank evaluates the application based on factors such as credit score, income, and existing debt.
Approval: If the application is approved, the bank issues the credit card, which can be either a physical card or a virtual card for online transactions.
Purchases: The cardholder can use the credit card to make purchases, both in-store and online. The bank pays the merchant on behalf of the cardholder and adds the purchase amount to the cardholder’s account balance.
Billing cycle: The bank sets a billing cycle, usually monthly, during which the cardholder’s account activity is tracked.
Statement: At the end of the billing cycle, the bank sends a statement to the cardholder, detailing the account balance, transactions, and the due date for the minimum payment.
Payment: The cardholder must make at least the minimum payment by the due date to avoid late fees and potential damage to their credit score.
Interest and fees: If the cardholder carries a balance from one billing cycle to the next, they will be charged interest on the outstanding balance. Additionally, there may be other fees, such as annual fees, cash advance fees, or late payment fees.
How does interest work on credit cards if you pay the monthly payment?
When you pay the minimum monthly payment on your credit card, you are only partially repaying the outstanding balance. The remaining balance is then carried over to the next billing cycle and subjected to interest charges. The interest rate on credit cards is typically expressed as an annual percentage rate (APR).
If you consistently pay only the minimum monthly payment, you will continue to accumulate interest on the remaining balance. This can lead to a situation where you are paying more in interest charges than the original amount you borrowed, a phenomenon known as credit card debt.
To avoid or minimize interest charges, it is generally recommended to pay more than the minimum monthly payment or aim to pay off the entire balance each month. This way, you can avoid interest charges and reduce the overall cost of using your credit card.
GOD BLESS,
James.
How do credit cards work?
Credit cards work by allowing cardholders to borrow money from the issuing bank up to a predetermined limit, known as the credit limit. When a purchase is made using a credit card, the cardholder is essentially borrowing money from the bank to pay for the item or service. The cardholder is then required to repay the borrowed amount, plus any applicable fees and interest, over a specified period.
The process of using a credit card typically involves the following steps:
Application: The cardholder applies for a credit card by providing their personal and financial information to the issuing bank. The bank evaluates the application based on factors such as credit score, income, and existing debt.
Approval: If the application is approved, the bank issues the credit card, which can be either a physical card or a virtual card for online transactions.
Purchases: The cardholder can use the credit card to make purchases, both in-store and online. The bank pays the merchant on behalf of the cardholder and adds the purchase amount to the cardholder’s account balance.
Billing cycle: The bank sets a billing cycle, usually monthly, during which the cardholder’s account activity is tracked.
Statement: At the end of the billing cycle, the bank sends a statement to the cardholder, detailing the account balance, transactions, and the due date for the minimum payment.
Payment: The cardholder must make at least the minimum payment by the due date to avoid late fees and potential damage to their credit score.
Interest and fees: If the cardholder carries a balance from one billing cycle to the next, they will be charged interest on the outstanding balance. Additionally, there may be other fees, such as annual fees, cash advance fees, or late payment fees.
How does interest work on credit cards if you pay the monthly payment?
When you pay the minimum monthly payment on your credit card, you are only partially repaying the outstanding balance. The remaining balance is then carried over to the next billing cycle and subjected to interest charges. The interest rate on credit cards is typically expressed as an annual percentage rate (APR).
If you consistently pay only the minimum monthly payment, you will continue to accumulate interest on the remaining balance. This can lead to a situation where you are paying more in interest charges than the original amount you borrowed, a phenomenon known as credit card debt.
To avoid or minimize interest charges, it is generally recommended to pay more than the minimum monthly payment or aim to pay off the entire balance each month. This way, you can avoid interest charges and reduce the overall cost of using your credit card.
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James.
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Krystle’s Answer
When you only make the minimum monthly payment, your remaining balance continues to accumulate interest. To save money and prevent this interest from adding up, which would increase your total balance, it's best to pay off your credit card in full each month.
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Carlos’s Answer
Credit Cards are essentially a way to borrow money against your future income.
They have their benefits, such as helping you establish a good credit history. However, they also have their drawbacks, as you end up paying interest on the money you borrow, which can reduce the value of your future earnings. This is all tied to a concept called per diem interest.
Per diem interest is figured out by taking the amount you borrowed, multiplying it by the yearly interest rate, and then dividing it by 360. After that, you multiply it by the number of days until the first day of the next month. This gives you the amount of interest you owe each day.
They have their benefits, such as helping you establish a good credit history. However, they also have their drawbacks, as you end up paying interest on the money you borrow, which can reduce the value of your future earnings. This is all tied to a concept called per diem interest.
Per diem interest is figured out by taking the amount you borrowed, multiplying it by the yearly interest rate, and then dividing it by 360. After that, you multiply it by the number of days until the first day of the next month. This gives you the amount of interest you owe each day.
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Danny’s Answer
1) You apply for a credit card from a bank and if you are approved, the bank will give you a credit card with a limit (a maximum amount you are able to spend)
2) You can use the credit card to buy things and you can spend up to the approved limit - this is called your credit limit (this is like a temporary loan from a bank)
3) The bank sets a billing cycle (usually every month) and all of your purchases are shown on your statement. It will also show the total amount owed, and the due date.
4) You need to pay at least the minimum amount by the due date but if you don't pay the full amount, the remaining balance carries over and you'll be charged interest - so pay the full amount every month!
5) Interest is the cost of borrowing money
6) Your credit card usage affects your credit score and a good credit score can help you get better loan terms in the future.
2) You can use the credit card to buy things and you can spend up to the approved limit - this is called your credit limit (this is like a temporary loan from a bank)
3) The bank sets a billing cycle (usually every month) and all of your purchases are shown on your statement. It will also show the total amount owed, and the due date.
4) You need to pay at least the minimum amount by the due date but if you don't pay the full amount, the remaining balance carries over and you'll be charged interest - so pay the full amount every month!
5) Interest is the cost of borrowing money
6) Your credit card usage affects your credit score and a good credit score can help you get better loan terms in the future.
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Nova’s Answer
When you swipe your credit card, you're essentially taking a loan from the card provider. If you settle your entire bill each month, you won't incur any interest charges. However, if you don't pay off the full amount and carry some debt into the next month, you'll be charged interest.
The interest rate on your credit card is presented as an annual percentage rate (APR). If you have outstanding debt, daily interest is calculated based on your APR and the amount you owe. This interest is then added to your total debt at the conclusion of each billing cycle.
If you only make the smallest possible payment each month, the remaining debt will continue to accumulate interest. This can result in a debt cycle that's hard to escape from. To prevent this and to avoid interest charges, it's a good idea to pay off your entire bill each month.
I trust this clarifies things! Feel free to reach out if you have any other queries.
The interest rate on your credit card is presented as an annual percentage rate (APR). If you have outstanding debt, daily interest is calculated based on your APR and the amount you owe. This interest is then added to your total debt at the conclusion of each billing cycle.
If you only make the smallest possible payment each month, the remaining debt will continue to accumulate interest. This can result in a debt cycle that's hard to escape from. To prevent this and to avoid interest charges, it's a good idea to pay off your entire bill each month.
I trust this clarifies things! Feel free to reach out if you have any other queries.
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