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How to Manage Your Credit Card and Become Debt-Free?

Numerous articles are written daily about how to manage your credit card, but few share enough information on how you can become debt-free. Financial freedom has become one of the leading desires worldwide, especially in the USA where there is more than US$1.2 trillion in unsecured debts.

What are Credit Cards?

Credit cards are unsecured loans issued by bankers to stimulate spending and facilitate easier and safer shopping. They differ in value, brands, and perks. Card limits are established by the credit score or the bank’s evaluation criteria of the receiver.

Cards come in generally four major brands: VISA, MasterCard, Diners, and American Express.  Other well-known cards include the JCB and Maestro.

Credit cards are made generally from thin rectangular plastic or metal and are issued by a bank or financial services. The institution enables cardholders to borrow money with which they may acquire goods and services.

Most merchants prefer to accept cards for payment, rather than cash, giving buyers the confidence that they will be able to shop with the need for money.

A credit card differs from a debit card since a credit card requires a third-party guarantee of the purchases and pays the seller. These funds are later paid to the company by the buyer.

Why do Banks Issue Credit cards?

Banks survive by renting their money for an agreed sum in return. This is usually an established percentage over a given period of time, usually a year.

Credit card loans are just an easier way for banks to create personal loans. These loans, with the exception of secured cards, impose the condition that cardholders repay the loans, interest, and additional charges of the contract.

Banks use credit cards to make money, they are unsecured loans, and these institutions make money from the following means:

Annual Fees: Financial institutions charge an annual fee for each car that they issue. This fee varies depending on the issuing company, the size of the loan (credit limit), or the card brand.

Late Fees: According to US law, financial institutions must provide a grace period of at least 21 days before they can charge interest on the amount spent. Please note that you are only responsible for the amount spent and not the card limit.

Interest on Unpaid Balances: This is the second highest earner for banks from credit card loans. Whenever used funds go over the due date, financial services begin to charge interest. The longer the funds remain unpaid, the more interest it will accumulate.

Percentage of Purchases via Merchant Portals: another way that banks make money is by deducting a percentage of the sales price from merchants for processing the transaction.

Cash Advance Interest: Financial services may not mention this, but they charge a higher interest rate on cash advances, and the interest is automatic from the day of the withdrawal.

Cash Advance Fees: Cash advances also vary by a small fee for the processor.

According to the FDA, the total number of global credit cards (June 2018) was 7.753 billion. Another report showed that in 2020, there were more than 1.09 billion credit cards in the U.S. and 72.5% of adults (187.3 million) had at least one credit card in this country [2].

How do Credit Cards transform into Debts?

Bad credit health, or a negative credit score, didn’t just happen. It was created by some habits that we did not pay details to. Here is the main reason that small loans, like credit cards, can rapidly become debt.

Your payment plan is paying the minimum: Banks do not tell you that by paying the minimum you are now incurring high-interest rates. The minimum payment includes a small part of the credit line plus the interest.

Having too many cards will increase how much you have to pay: Always remember that credit cards are personal loans and that you must repay them.  Each card carries different interest rates even if they are from the same bank. Try to borrow below your income range.

Failing to pay on time:  Not paying on time will incur more interest and may even damage your credit rating, which will affect your possibilities on future loans.

Taking cash advance: Cash advances incur interest from the moment you withdraw it.  Banks charge higher interest on cash advances than they do on regular purchases which have up to 21[1] days to pay off with o% interest.  Cash advances also have hidden fees, the standard is 3% or a minimum of $10, this means that if you withdraw $100, fees are $10, or on a $1000, fees are 30. (For more information on what constitutes a cash advance? Please see the FAQ below)

How to Manage Your Credit Card and Become Debt-Free?

The first step is to build a good credit card history.  This will mean paying your card bill on time. This is very beneficial since you will not be charged any interest.

Since credit card issuing institutions report payments and purchasing activity to the major credit agencies, cardholders who manage their card well will establish high credit scores and extend their lines of credit.

When users are disciplined in making timely payments, and avoiding overdue payments, then no debts will be created in the first place. Most debt occurs when clients fail to treat credit cards as recurring loans. That is if it is paid today, it is there tomorrow again.

Use your card for shopping. Instead of buying goods or services with your earned cash, pay off your credit card and shop with it instead. Avoid cash advances in all of its states, since you incur interest immediately.

If you are able to put some of these tips into practice, you will learn how to manage your credit cards and become debt-free.


What do banks classify as cash advances?

Financial services consider these payments as cash advances.

  • Mortgage Payment
  • Utility bills
  • Buying travel vouchers
  • Travel money or travelers’ checks
  • Betting and casinos including lottery

What is a line of credit?

A line of credit is a purchasing value that is extended to a client which allows purchases without the client having to use their own money.

What are the types of credit cards available?
Secured credit card: Users must make a corresponding deposit in a fixed account that secures the limit of the card.
Prepaid debit card: Like a secure credit card except that it is renewable unless specified.

Unsecured credit card: These are the most used cards, they do not require any deposits, but rather are based on credit score criteria.


Federal Trade Commission. “Credit Card Accountability Responsibility and Disclosure Act of 2009  “Credit Cards

4 thoughts on “How to Manage Your Credit Card and Become Debt-Free?”
  1. Credit card is the worst thing in life. It leads to a financial crisis. In simple terms, it is a strategy to trap people in the vicious cycle of taking a personal loan and paying interest as well as fines in many cases. Isn’t it better to reduce our expenses and try to increase our income?

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