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Credit Cards 101: What You Need to Know

Credit cards can be a great financial tool when used responsibly. Unfortunately, they can also be a huge source of stress and debt if not handled properly. It’s important to understand the basics of credit cards so that you can make smart decisions about how to use them and get the most out of your spending.

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THE BASICS OF CREDIT CARDS

Credit cards work by allowing users to borrow money from the issuing company and pay it back at a later date. The amount of money borrowed is referred to as the “principal” while the interest charged is called the “interest rate” or “APR” (annual percentage rate). APR is usually expressed as a percentage. For example, if your credit card has an APR of 15%, this means that you will be charged 15% in interest on any balance that remains unpaid after one year.

THE BENEFITS OF CREDIT CARDS

A major benefit of using credit cards is that they are convenient and secure. When making purchases with cash, you have to worry about carrying around large amounts of money, which can be dangerous. Credit cards also offer consumer protection in case there are problems with a purchase or if your card is lost or stolen. Additionally, many credit cards offer rewards such as cash back or points for every dollar spent, which can be redeemed for free travel, gift cards, and more.

USING CREDIT CARDS RESPONSIBLY

The key to using credit cards wisely is to pay off balances before they accrue interest charges. If you don’t do this, then your debts will quickly mount up as interest charges accumulate each month until you eventually run out of available funds on your card and face steep penalties for missed payments or late fees. To avoid this situation, always make sure that you pay off your balance in full each month before the due date so that no interest charges will apply. Additionally, try to keep track of how much you spend on your credit card each month so that you don’t overspend and end up with an unmanageable debt load.