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Credit Card Basics: Everything You Should Know





The credit card is one of the most divisive products among all the financial tools available. Ask around and you're sure to find people who pay all their expenses using credit cards as well as others who swear the products are the embodiment of pure evil. Opinions among financial experts and thought leaders are just as mixed. Dave Ramsey won't even let customers pay for his products using credit cards, and his large following is adamant about the destructive powers of credit and the virtues of debt abstinence.

A credit card is nothing but a tool. Whether its effects are helpful or harmful depends on the skills and knowledge of the user, a person with the power to choose how to use the tool. Here is everything you need to know in order to make the most out of this particular financial tool, taking advantage of its benefits without falling into any traps. Here are some of the common traps for dealing with credit card rewards.

Credit cards are not for everyone. Like tools, in the wrong hands, they can be dangerous. If you have personality traits like a tendency to lack self control, if you're in the process of repairing your finances, or if you're not ready for personal responsibility, avoid credit cards until you are mentally and emotionally prepared.

What is a credit card?

Physically, a modern credit card is a rectangular piece of plastic, graphite, or a metallic alloy, that identifies a financial account. All contain a magnetic strip on the back, and some contain an RFID chip. An account number and the owner's name or business name may be imprinted on the front.

Behind the scenes, the credit card represents a type of financial account. By using credit cards, customers can offers a bank's money instead of their own to pay for a product or service today, and over time, they repay the bank. For the benefit of using someone else's money, customers will often need to pay interest, as expected with other types of loans. This is where problems can arise. Using other people's money is often preferable than using your own because it lets you keep your own money available for other purposes, but if you buy something with someone else's money while not being able to repay that type of loan, the results can destroy your own financial future.

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