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Financial Education for Everyone

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Credit cards provide security, convenience, and even rewards based on spending. However, if cardholders don’t manage their cards carefully, they may find themselves facing unwanted consequences like a poor credit score or hidden fees.

Credit Basics

Get to know credit cards with these 10 credit terms:

Pros and Cons of Credit
To make the most of your credit cards and maintain a great credit score, it’s essential to understand their pros and cons. Maximize the benefits and minimize unnecessary costs by learning about the advantages and disadvantages of credit.

Advantages

  • Instant Purchasing Power – Credit can help with unexpected emergency expenses and give you the flexibility to pay them over time.
  • Security – Lose cash, and it's gone. Lose a credit card, and it can be canceled with no harm done in most circumstances. Also, you need to be prompt about reporting a lost or stolen card to be protected against its unauthorized use.
  • Record Keeping – Your credit card statement is an itemized list of your monthly expenditures, which can be helpful when it comes to budgeting.
  • Convenience – Credit cards are more widely accepted as a form of payment than checks, and they're generally faster to use.
  • Bill Consolidation – Bills can be paid automatically via credit card, consolidating several payments into a single sum.
  • Rewards – Using a credit card with a rewards program may earn you benefits like free travel.

Disadvantages
The main disadvantage to credit card usage is the potential cost in interest and fees. Wise use of credit means understanding those costs and acting accordingly. Keep track of your spending to ensure that you can repay your credit card bill in full when it is due each month.

The True Cost of Credit Card Purchases
If you don't pay off your credit card balance every month, the interest assessed on your account means you may be paying more than you expect. And if you spend beyond your means, the resulting interest and debt can become significant.

See how much extra you might pay on a $1,000 credit card purchase with varying interest rates:

Total Purchase Amount
This is the balance due on your credit card
$1,000
$1,000
$1,000
Credit Card APR
This is the annual interest rate on your credit card.
10% 15% 25%
Monthly Payment
This includes paying just the minimum monthly payment, calculated in this example as $40.
$40 $40 $40
Number of Months to Pay Off Purchase Amount
This is how long it will take you to pay off the entire balance.
29 31 36
Total Finance Charge
This is the total amount of money you will pay just in interest.
$126 $207 $427
Total Cost
This is the final amount you will pay for your purchase.
$1,126 $1,207 $1,427

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