How Do Credit Cards Work? How Useful Are They?

Credit cards are a dominant form of payment, but how do they work exactly? Based on the enormous debt piled up on credit cards, many users don't seem to know the answer to that question.

Credit card issuers promote the supposed prestige of shopping with credit cards, but for consumers, opening the bill can be quite sobering.

What is a Credit Card?

Credit cards are one of the most popular forms of payment for goods and services. The thin rectangular piece of plastic or metal serves as a payment option for buyers to borrow funds for purchases today and pay them back later.

How do Credit Cards Work?

Credit cards allow users to make purchases and pay bills. First, a buyer gives the credit card to a merchant, who electronically contacts your credit card issuer to authorize the transaction based upon the credit card terms

How do Credit Card Companies Make Money?

The credit card issuer makes money by charging you interest for loaning you money. There is a 21-day grace period where no interest is charged. If you don't pay the debt back by then, you will incur interest fees.

Nobody "needs" a credit card. It should only be used by those that have the means to pay the bill on time.

Who Needs a Credit Card?

When considering a credit card, you must consider the pros and cons. Then, build solid money habits to ensure you stay on budget and pay the balance in full each month.

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