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Credit card basics: what every consumer should know

Credit cards are widely available these days to anyone who lives in the Nashville area. While millions of people use their credit cards frequently, not everyone has a full understanding of how they work. Credit card use has been on the rise over the last several years, reports CNBC. Credit accounts have reached over $1 trillion, making it a significant part of the debt load held by households throughout the country. Whether just starting out using credit or recovering from past financial struggles, having some basic knowledge about how credit card companies function can go a long way toward preventing future trouble.

According to Forbes, a credit card is essentially a loan from a bank or other lender. Instead of a customer paying for something with cash, the merchant accepts payment from the bank instead. The customer is then responsible for paying the bank back in the future. As with any loan, consumers must agree to terms. Generally, credit card terms state that any amounts that are not paid off at the end of the month are subject to interest.

Credit card users can be divided into two groups. The first is to make a big purchase or defer payment for a purchase until the end of the billing. Those who use them for this purpose and pay off their total balance at the end of each month will have good credit scores, which in turn will afford them to access to more credit.

However, others use credit cards because they do not have the cash to cover a purchase. Those are the people that may find themselves in trouble down the road. People tend to spend more when using credit and if a person is unable to pay off the full balance at the end of the billing cycle, he or she may end up actually paying much more in interest than the original purchase would have cost them. Lenders set a minimum amount that must be paid each month toward the balance. Those who are unable to meet the minimum or who fail to make payments altogether may find themselves facing mounting financial problems.

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