Credit Cards

...are credit cards for me?

The answer, of course, is: that depends

Credit cards are a form of loan that allow you to buy today and pay later...it is credit that has been extended to you by a company. They earn money off of interest rates charged for late payments. Initially, credit cards are often offered at zero rates to entice you to use them, and then the rate adjusts after a grace period (usually about 6 months). Check with your specific card for details.

Another way credit card companies entice you to use their cards is by offering rewards tied to your usage of that card. The more you spend with that credit card, the more you earn in reward points. Many times these rewards are gift certificates, airline tickets, or hotel accomodations. So, in a sense, you are paid to use that card. Some cards actually pay you a certain percentage back at the end of the year...you know the commercial, "It pays to Discover!" Additionally, because you don't get billed for the purchase for several weeks, in a sense, the company is floating you a loan allowing you to earn interest on you money.

The reason credit card companies issue credit to consumers and offer rewards for using these cards is because they earn interest on charges to the card. These rates differ per card.

Some more about credit cards:

As far as your personal finance goes, never charge more than you can pay off. A credit card is extremely useful when handled properly, but consumers can quickly get in over their heads. Pay off outstanding credit card debt as quickly as possible to eliminate credit card debt.

Positive about credit cards: earn rewards, float loans.

Negative about credit cards: high interest rates, feeling of having more money than you actually have.

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