2 Big Myths About Credit Cards Debunked

DDerek August 21, 2023 10:47 AM

There's a lot of misinformation out there about credit cards. From how they work to how they can affect your credit score, the myths can sometimes overshadow the facts. Today, we're here to debunk two of the most common myths about credit cards.

Myth 1: Credit Cards are a Ticket to Unending Debt

The first myth is that using credit cards inevitably leads to unending debt. This myth is largely due to misunderstandings about how credit cards work. The truth is, credit cards are tools that, when used wisely, can be beneficial for your financial health. Here's how:

  • Interest Rates: Credit cards do have interest rates, but these rates only apply if you carry a balance from month to month. If you pay your balance in full each month, you won't be charged any interest. This is known as the 'grace period'.

  • Fees: While some credit cards have annual fees, many do not. In addition, many of the fees that do exist can be avoided with careful use of your card.

  • Rewards: Many credit cards offer rewards such as cash back, airline miles, or points that can be redeemed for goods and services. These rewards can add up to significant savings over time.

  • Credit Score: Using a credit card responsibly can help you build a good credit score, which can make it easier to get loans with favorable terms in the future.

Remember, the key is responsible use. That means paying your balance in full each month, not maxing out your credit limit, and not applying for too many cards at once.

Myth 2: Making the Minimum Payment is Enough

The second myth is that making the minimum payment on your credit card each month is enough. The truth is, only making the minimum payment can lead to higher interest charges and a longer repayment period.

Here's an example to illustrate this point:

Balance APR Minimum Payment Time To Pay Off Total Interest Paid
$5,000 15% $125 (2.5%) 273 months (almost 23 years) $6,923

As you can see, making only the minimum payment can cost you a lot in the long run. To avoid this, try to pay more than the minimum each month, or better yet, pay your balance in full.

In conclusion, understanding how credit cards work can help you use them to your advantage. Don't let myths and misunderstandings keep you from benefiting from the convenience and rewards that credit cards can offer.

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