What is a credit card?

A credit card is a thin, rectangular piece of plastic or metal that is provided by a store, a bank or a different financial institution that allows the cardholder to pay for services or goods with borrowed funds.

These borrowed funds must be paid back according to the conditions specified by the credit card, which include the amount borrowed as well as any interest or any other additional fees agreed on by the billing date.

The billing date is typically within a 30 to 40 day window from the original day the funds were borrowed. 

How do I get a credit card?

As discussed above, a credit card is issued by a financial institution. Credit cards are probably most associated with banks or credit unions, but they can be found in most stores as well.

Other credit cards are their own companies such as American Express who offer their own funds through their specific card.  

How a credit card benefits me

There are four main ways a credit card can benefit you.

Ease of spending

First, is the ease of spending. Gone are the days where we have to carry around dollar bills and loose change to pay for groceries. Now all you need is your wallet and a small card, and you can purchase all your daily essentials.

Security of the funds

Security of your funds is a second major benefit. Since Credit Cards are tied to financial institutions, they have a great security system in place for tracking your money.

Each credit card is specifically tied to you and your spending history. Therefore, if you are to lose your card, you can simply reach out to the card issuer and ask them to cancel the card so it does not get charged with false funds that you did not spend.

Tracking your spending

A third key benefit provided by credit cards is the ability to easily track your spending. For those who do a budget, a credit card helps tremendously. Because every purchase is tracked only, no longer do you have to save receipts or try and remember where you went and how much you spent. Simply download the expenses each month and know right away if you are within your budget.

Free Money

Finally, free money is an incredible benefit. Free money with credit cards can come in basically two forms: signup bonuses and cash back. Wisely using both of these reward systems could benefit you thousands of dollars a year.

Potential Dangers of a credit card

There are two main dangers you should be aware of when getting or using a credit card.

Interest Rate

The first danger is interest rate charges. Interest rates are those pesky charges you must pay when you do not pay off all of your expenses at the end of the month. Not being watchful of your spending can lead to added fees when, at the end of the month, you owe more than you can pay.

Overspending

Directly connected to the first point is the second danger: overspending. Looking back to the benefits of credit cards we saw that they provide ease of spending. While that perk is certainly helpful, it can also be very dangerous.

Often people do not realize how much they are spending with credit cards. In fact, due to overspending, the national credit card debt going into 2023 is $841 Billion.