by Jonte Rhodes

Created on: October 13, 2008

Credit cards today are more popular then ever, and more and more people use them every year. As well as this many people tend to find themselves in debt to the credit card companies due to the fact that they don't seem to fully know how credit cards work. The most difficult thing to understand about credit cards in reality is how interest is charged. In actual fact however, credit cards are for the most part easy to understand, and can be used much more effectively and safely once you know a little more about them.

The major pitfall that most people fall into is not knowing how the interest on a credit card works. Basically using a credit card is similar to getting a loan, in that you are charged interest at regular intervals based on a percentage of the outstanding amount. However unlike loans, credit cards charge a high amount of interest, and are designed to be paid off quickly, rather than over the long term in smaller increments. This is often why people tend to find that their credit card bills can spiral out of control, because even a small bill left unpaid can grow rapidly.

Generally speaking credit cards will send you a bill detailing how much you have spent at the end of the month. From the first day of the following month, you will start being charged interest. The easiest way to pay them off is by using a check, so long as you have the money in your bank account that is. If you don't have the money, then you may find that your overdraft interest is even higher than your credit card interest.

Lets say for example that you were to use your credit card to the amount of $1000, and that you are being charged at a monthly rate of 10%. At the end of the month you used the card, you would receive a bill informing you that you owe them $1000, although no interest would have been added as of yet. If you then don't pay the bill, at the end of the next month you would then owe $1100. This again isn't much of an increase, however the interest charged is now for the amount of
$1100, not the $1000 you actually spent.

And so in the next few month the amount owed would become: $1210, $1331, $1464.10, $1610.51, $1771.56, $1948.71, $2143.58. Eventually the amount that is being added to the total sum is more than most people can afford to pay. If for example you are paying off $200 per month, then eventually the interest will become larger than this amount. If you really cannot afford to pay off more than this per month, then the amount that you owe can snowball, and you

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