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There are many pros and cons of using a credit card, but if you do choose to use one, it is essential to use them responsibly and correctly. This can be done by having a sound understanding of how a credit card works and how it differs to a regular debit card.


How does a credit card work?

A bank will continually give you a line of credit to use for whatever you choose to purchase. From there, your end of the bargain is to pay your bills on time and in full. If payments are not made on time or in full, interest will begin to be accrued, making your bills more expensive. This means you will be paying more than what you spent using the credit card. Interest rates will depend on the bank and type of credit card you choose.

If you do not pay the bill in full, your bank will give you the option to pay over time (including interest) as long as you make the minimum repayments by the due date. In this case, you will still be able to use the credit card as long as you do not exceed your credit limit. For example, if your credit limit was $5 000 and your owed balance $2 000, you will still have $3 000 of credit available to spend. While this may appear to be a positive aspect of a credit card, this can lead to you digging yourself into more and more debt over time.


How to use a credit card responsibly

There are many pros to using a credit card, and one is that you have funds available to you, no matter what your bank account states. But getting into a pattern of consistently spending more than you can afford could ultimately lead to a mountain of debt that you cannot pay off.

Using a credit card responsibly means paying off the full balance before or by the due date, every month. Avoid spending above your means, or buying for the sake of buying. Alternatively, you may like to have a credit card handy for emergencies only and stick to using your debit card or cash day to day.

Remember to spend responsibly, and always do your research before making large financial decisions, and contact us if you need help paying down a credit card debt.




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