Credit cards can be a helpful financial tool when used wisely. They offer convenience, protection, and flexibility—but they also come with costs that are important to understand.

Benefits of Using Credit

Credit cards offer several advantages:

• Easy to use for everyday purchases
• Fraud protection if your card is lost or stolen
• Ability to take advantage of sales even if payday is still a few days away
• Some cards offer rewards or cash back

When used responsibly, credit cards can help build your credit history and provide financial flexibility.

The Cost of Using Credit

Let’s look at how interest adds up over time.

• If you make a $100 purchase at an 18% interest rate and pay only the minimum each month, it will take about 8 months to pay off. You’ll pay around $6.16 in interest.
• If you make a $500 purchase with the same card and pay only the minimum, it will take 47 months to pay off. You’ll pay about $198.34 in interest.

That’s nearly four years of payments for a single purchase. It’s easy to lose track of what you’re still paying for long after the item is gone.

How Minimum Payments Are Calculated

Credit card companies may use different methods to calculate your minimum payment:

• A flat percentage of your balance
• A percentage of your balance plus interest or fees
• A fixed dollar amount

You can find this information in the fine print of your card agreement. If you’d rather not do the math yourself, online tools like CreditKarma, Forbes, or AARP offer helpful calculators.

Types of Credit Cards

There are many kinds of credit cards, each with different features. Some charge annual fees, while others do not.

Rewards Credit Cards

• Great for everyday spending. You earn cash back or points that can be redeemed for credit on your account or transferred to your bank.

Travel Credit Cards

• These offer flexible points that can be used for travel purchases or transferred to airline or hotel loyalty programs.

Airline Credit Cards

• Branded cards that often offer bonus miles when you sign up. Perks may include free checked bags or priority boarding.

Secured Credit Cards

• Ideal for those building or rebuilding credit. You start with a cash deposit that secures a small line of credit.

Store Credit Cards

• Usually tied to a specific retailer, such as a department store or Amazon. These are often opened to access special discounts or perks.

Credit cards can be a useful part of your financial toolkit. The key is to understand how they work, use them intentionally, and avoid carrying balances that cost you more over time.