How Do Credit Cards Work? [and Traps to Avoid]

I’m usually a debt agnostic on the blog. Far from preaching the debt-free lifestyle, I believe debt is a tool and can be used to build something if used responsibly.

But there is a lot not to like about credit cards and how they work. While other types of debt can be managed and paid off more easily, credit cards are more difficult and have all kinds of ways to make you overspend.

Understanding how credit cards work and some of the most common debt traps will help you get the most of your plastic.

Debit cards are like a plastic check book. You can only use a credit card for as long as you have money in your bank account to cover purchases. That means you’re not actually borrowing money.

Credit Cards vs Debit Cards

Credit Card Traps to Avoid

Credit card companies know that once they’ve got a card with your name on it, it’s only a matter of time before you owe them interest.

They start with low introductory rates, even as low as 0% on purchases for up to a year. This will make even people that wouldn’t think about borrowing money on a card fill out that application in a heartbeat.

Credit Card Traps to Avoid

Of course, that introductory rate will eventually increase and even the most disciplined saver will have trouble paying off the entire balance before owing interest.

Credit Card Traps to Avoid

Credit cards will even benefit from the psychology of money. Studies have shown that people are willing to spend more when they pay with a credit card rather than with cash. 

Credit Card Traps to Avoid

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