Credit Cards 101

The general idea of a credit card is that you have established yourself as enough of a dependable borrower that a company will give you a flexible, predetermined amount of money they are willing to lend to you. Since the company is taking a risk, they expect to be paid back the principal (the amount you spend) along with interest (their profit). These interest rates can range from about 12% up to almost 40% and are mostly based on your credit score and type of card you get. Interest is applied on any balance left on the card at the end of a monthly cycle which is accrued daily.

Everyone has to start somewhere and credit cards are a great place to start building your credit score. There are credit cards specifically for people starting as well as options for low credit scores. However, the better your score the less you will pay in interest. With a good credit score, you will even start to accumulate rewards!

It is not necessary to have a good credit score when applying for credit cards, after all, healthy credit card usage can be a great way to improve your score. However, lower scores will increase your interest rate. Scores under 629 can expect interest rates in the range of 19.99% - 26.99% annually. With a fair to good credit score (630-719), APR begins to drop to 12.99% - 24.99%. There are also added benefits in this range of introductory APRs of 0% for 6-18 months for some cards. Zero percent intro rates coupled with balance transfers from other cards can be the boost you need to pay down your balances and drastically improve your credit score!

While these bits of plastic can seem like magic, you do need to be aware of the potential downsides. To start, opening more lines of credit too quickly can harm your credit score. Lower scores will limit your options in the future for better interest rates on any loans that you apply for as well as limit the potential to qualify to rewards cards.

Paying with a card can remove your awareness of how much money you have in your bank account. This makes it very easy to overspend your current bank balance. Accumulating a balance on your credit card without paying it down can lead to a substantial interest balance piling up. Can I just pay the recommended minimum payment? This is the big "gotcha" with credit cards. It is very appealing to go on a $1000 shopping spree and only have to pay $25 a month. However, the consequences will be felt for a very long time and can cost you much more than just what you spent plus interest. Instead, aim to strategically pay down your loans using our debt reduction tool. Try to find a 0% card to transfer your balance to so you can maximize the amount you can pay toward the principal balance. Beware though, these introductory offers only last for a limited time so take full advantage of them while they last! It is also easy to miss out on all of the available rewards on the cards that you have and apply for. Take some time to compare cards before applying and find a card that fits your needs and lifestyle.

Having a mountain of high-interest credit card debt can be daunting. Step 1 is to create a budget and stick to it! You would be surprised how much excess you spend that can be reallocated toward paying down your debt. Step 2 will be finding lower interest loans to transfer to. This is a fast way to cut months off of your timeline and potentially save you thousands of dollars! See below to get started finding a great new card to transfer to! Now that you have a budget and have transferred any of your highest interest loans to more favorable cards onto step 3! Time to create a strategy to prioritize which loans to pay off first.