Credit Cards

1. Pay the full balance. This is the most recommended option because you typically don't have to pay anymore than you actually spend. I have my credit cards set up to automatically deduct the entire balance in full from my checking account so I never pay a penny in interest. My credit card actually pays me, but we will discuss that later.
   
   
2. Pay less than the full balance, but at least the minimum payment due. If you can't make your full payment, this may be a sign of a spending or finance problem. Probably not too big of a deal, but something to keep an eye on. See our credit help sections.
   
   When you pay less than the full balance, you are charged interest. Here is how this works: Say your interest rate is 24% and you have a balance of $2000 due. You only pay $1000 off, leaving the other $1000 to carry over to the next month. You get charged one month of interest on that $1000. Since 24% is your yearly interest rate, 2% is your monthly interest rate. You are charged 2% of $1000, or $20 for not paying your balance off in full. That $20 charge is basically for the credit card company to spot you the cash for the time being. Since you only pay $1000, the other $1000 carries over to the next month, and the $20 charge is tacked on. Your balance is now starting at $1020 for the next month.
   
   Paying less than the full balance every month does not negatively impact your credit score, but paying only the minimum balance every single time might hurt you in the long run.
   
   
3. Pay less than the minimum due or pay nothing at all. This is the absolute worst possible option. You will be slapped with fines, interest and your credit score will suffer greatly. If you don't think that afford your credit card bill, don't spend so much!

1. Emergency funds. If you are in a bind and need some fast cash for some reason or another, having a credit card that is not maxed out will get you out of that situation with ease. You won't resort to having to take out a payday advance if your credit card isn't tied up.
   
   
2. Rewards and cash back. My credit card offers 1-3% cash-back on any purchase. This means that if I spend $10,000 in a year, the credit card company will send me a check for $100-$300! There are plenty of other reward programs out there which can get you free electronics, gift certificates, etc. Why do they offer you money for using their credit card? These companies charge the merchants a little bit every time they run your credit card, and they want to give you incentive to keep using your card.
   
   
3. Tracking your spending. Each month, you will get an itemized receipt of every expendature you made with that card. You can easily take a look at it and see if you are spending too much in some areas.
   
   
4. Building positive credit history. By using your credit card and making the payments on time, you are helping make your credit report look better.
   
   
5. Security. If your credit card gets stolen or lost, you can simply cancel it and have a new one sent to you. If you lost cash, you wouldn't ever be able to get it back!

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