Most people have probably experienced a situation while shopping when a cashier tells you that if you open a credit card you’ll save $20 on your order or get 30% off your next purchase. The enticing offer makes it easy to agree, but there are some things you should know about credit cards before signing up just to receive a special offer.

Before you sign up for a credit card, it is important to learn as much as you can about the terms that come with it. There are some credit cards that have start up fees, annual fees or very high interest rates. Most credit cards also have a bonus for using it, such as point systems, frequent flyer miles, cashback opportunities, etc.

When you sign up for a credit card, you take money out on a line of credit, which is another way of saying you are borrowing the money. Unlike a debit card, credit cards don’t take the money out of your ac- count immediately and it isn’t mandatory to pay the full balance each month. When you receive your credit card bill, you will be required to pay at least the monthly minimum balance, which is only a small fraction of what the full balance is. However, paying only a portion of the balance comes with a high price: interest.

For example: you opened up a credit card with a 15% interest rate on Jan. 1, and the period goes until Jan. 31. During the month, you charged $737 and received the bill in the beginning of February. The minimum payment of $16.58 looks better than paying the full $737. If you don’t charge anything else to the card, and only decide to pay the monthly minimum payment until it is paid off in full, it will take you 76 months. You will pay a total of $400.42 in interest, on top of your original balance of $737, for a grand total of $1,137.42.

You would be paying more than half of your original balance just in interest! If you decided to pay the full balance off instead, then you wouldn’t have to pay any interest on your original balance. That is why it very important not to treat credit cards like loans and to pay your balance off in full every month.

If you think you can be responsible with a credit card, sign up for one that is the best fit for you. If you don’t plan on paying the full balance each month, pick the credit card with the lowest interest rate available and offers a bonus that entices you, such as one percent cashback on all purchases or five percent off every purchase at your favorite stores.

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