What is credit? Should I be scared by it?

Credit = borrowing money, typically from a bank. When borrowing, people tend to freak out about: 1) interest and 2) credit scores.

Let’s talk about Interest:

Remember the tiny amount of interest banks pay you for depositing money with them? When the roles reverse and banks lend YOU money, they charge way more interest. Annual interest on credit card balances can be 20%. That’s a LOT, considering what you get paid by the bank for your savings deposit is anywhere from 0.1%-2% (with the best savings accounts), or that a year in the stock market earns you on average 10% over time.

Don’t be scared. MANY responsible people use credit cards for MOST purchases. The key is to pay your TOTAL BALANCE before your due date. If you do, by setting up an automatic transfer from your bank account (checking or savings account) on the due date, you’re GOOD! If you automatically transfer the total amount due from your bank account directly to pay off your credit card bill, the most critical thing is to ensure you always have enough in that account to cover your bill (what you spent). Get smarter on understanding how you spend, so you know what you’re working with.