Credit Card 101

Simply enough, we have all heard of credit cards, or most of us already own one (or multiple!). But do you fully understand how a credit card works? Some people use a credit card as their primary method of paying for items, while others use it sparingly for special purposes. A credit card isn’t your personal money that is available that you can keep spending! When you use your credit card, you are basically taking out a loan from your financial institution to pay for that purchase. Instead of you going to the bank each time to borrow funds, the credit card is a more convenient and simpler way to borrow. With that said, the money borrowed is required to be repaid within the time frame specified. If that money is paid within the time frame, then the money is interest free. However, if you do not repay the loan in full by the specified time, then you will have to pay an interest charge for the use of the borrowed funds.

Paying only the minimum amount that the financial institution requires, allows you to remain current and not be viewed/reported as delinquent. However, this is not a recommended financial strategy, as paying your minimum balance may result in you repaying your loan possibly many times over. The goal is to pay off your balance in full each month. If that is not realistic for you, try to pay as much as you can to reduce the balance, and refrain from adding more charges which will continue to increase the balance owed.

While having a large credit limit is seen as a major financial milestone (telling someone you have a $20,000 or $30,000 credit limit sounds impressive!), you have to remain mindful that you are still to remain responsible in managing that credit line. A person with a larger credit limit, is more likely to make bigger purchases. It’s similar to the concept that when people earn more money, they tend to spend more.

If you are using your credit card responsibly, then thumbs up to you. If you are having a challenging time managing the credit card, then take steps to create and implement a plan to eliminate the credit card balance. Remember, living credit card to credit card, is not living your best financial life!

If you have any questions, comments, or feedback, please leave them below.

2 Comments Add yours

  1. Lestin Myrie says:

    That’s why I always repaid the full amount I borrow so that I don’t have to pay interest

    Liked by 2 people

    1. jamaicancpa says:

      That is a great strategy, pay in full and avoid interest charges.


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