Credit Card
Definition
A credit card is a payment card that allows users to borrow funds from a card issuer to pay for goods and services, with repayment due later.
Explanation
Credit cards offer convenience and the ability to pay over time, but they typically carry high interest rates (15-25% APR). Paying the full balance each month avoids interest charges. Credit cards also offer rewards, purchase protection, and build credit history.
Carrying a balance month to month results in compound interest that can quickly grow debt. Minimum payments are designed to maximize interest income for issuers, not to help you get out of debt quickly.
Example
Charging $1,000 on a credit card with 18% APR and paying only the minimum ($25/month) would take over 4 years and cost more than $400 in interest.