Basics of a Credit Card
We make it easy to get into debt!
What is a credit card?
The bank's card that you are allowed to use to spend the bank's money
What isn't a credit card?
Your money.
(A debit card is your money)
Overview:
A credit card allows you to spend a bank's money now, with the promise that you'll pay them back that same amount or more in the future. Some offer rewards and perks when signing up and for using their card.
At the end of a pay cycle, usually either the middle or end of the month, you will be charged interest on the outstanding balance. Meaning you will have to pay a percentage extra of whatever amount you haven't paid off by the given date.
It's very important that you pay off balances of your credit cards on time, not only to avoid debt spirals but your payment history makes up the largest chunk of your credit score at 35%, followed by how much you owe total at 30%.
There is no "winning" against credit card companies, there is only winning against the merchants and other users. Mastercard, Visa, American Express, and Discover all have numerous methods to make money and distribute the costs of the rewards they give among businesses and users. (Interchange fees and other charges that happen in the background of your transactions)
Good examples of when to use a credit card
Jacob is doing well for himself, he has money saved up and decides to treat his girlfriend to a nice dinner.
He could use his debit card, or his credit card which has a 5% reward on eating out. He decides to use his credit card.
Jacob then pays off the balance early, having built credit and earned rewards while paying $0 in interest.
Example 2
Richard is broke but will get paid from his job in 3 days. When suddenly his ceiling light breaks.
But he sees a sale for light bulbs that ends tomorrow. He decides to use his credit card.
He buys the light bulb today and pays off the balance 3 days later. With $0 interest charged.
Spending money or something you can afford, a necessity or properly investing in yourself can be a valid reason to take on credit card debt. Having a plan to pay it off with no interest charged allows you to build credit, earn rewards and make unexpected repairs.
What is Interest? What is APR? Principal?
Interest(%)
How much extra you owe us
for borrowing our money
(I only apply to the principal)
APR(%)
(Annual Percentage Rate)
The total cost for you to borrow the money with everything included such as fees.
Principal($)
The original amount of money you borrowed from us.
Spend $500, your principal is $500
Interest is the most immediate factor when looking at credit cards. It will grow over time, building on itself, this is called compound interest.
If you are confused by Interest vs APR, use interest to calculate monthly payments, use APR to see the final cost of the loan.
|
Principal |
APR |
How much you'll owe in 1 year |
|---|---|---|
|
$2,000 |
0% |
$2,000.00 |
|
$2,000 |
5% |
$2,102.32 |
|
$2,000 |
25.32% |
$ 2,567.42 |
This example is simplified, here interest is monthly and excludes any types of fees. 25.32% is the median APR for Americans as of April 20th,2026 (Source: Forbes)
Compounding interest is what makes debt grow parabolically, tackling debt early is essential to avoid falling into a debt trap.
(There are such a wide variety of credit cards, interest rates and extra fees will vary between cards)
How companies try to take advantage of you
Companies will often use time to pressure you to not think long and hard about applying, it's easier if they get you quick!
Credit cards can become addictive, it is easy to spend now and pay later. When it's time to pay, you may be paying for the next few years.
It's in the company's interest that you pay the minimum, because they can continue to charge you more for longer.
In many cases paying only the minimum balance, will never pay off the credit card debt.
Common incentives
This is your teaser rate, this rate will expire after a certain period of time, usually about a year, then you will be charged a rate dependent on your credit score. (Sometimes as much as 30%!)
Great, you don't get a yearly charge just for having a credit card. What about no penalty fees, late payment fees, monthly fees, return payment fees, over-the-credit-limit fees, intro fees, balance transfer fees, cash advance fees, custom pay plan fees, etc? I didn't think so. Read the paperwork, it'll list the extra fees.
"Get $1,000 when you spend $5,000 in your first 6 months, what a deal!" No, unless you were already going to spend $5,000 in the next 6 months, you're wasting more money.
By the way we control the value of the points, when you can spend them, how long you have to spend them, where you can spend them, and how many points it will cost. Plus we can change any of this stuff whenever we want for whatever reason we want.
How they really make money
See the Visa, Mastercard, Discover, or American Express logo on the bottom right corner of your credit or debit card? They are the payment networks that help facilitate the transfer of your money to where ever you are buying from.
When I buy some gas from a gas station, my bank needs to communicate with the gas station's bank. A card network (Visa, Mastercard, etc) connects our banks and passes my information along while charging fees.
There are three steps here, the Interchange fee that the gas station pays to the issuing bank, the Association fee, which goes to the card network, and the Processor Markup fee, that goes to the credit card processor. This is where the real money comes from, why charge a few people a lot of money when you can charge everyone a little bit?
The real goal: Charge as many transaction fees as possible
Final remarks and Opinions
Credit cards are tools, tools for banks and other businesses to make money but also a tool for you to benefit from money spent (responsibly). However, companies will always try to take advantage of people, especially those who are the most vulnerable. Having access to credit can be great in some cases where you just need a little more time to pay for something like critical repairs or essential goods.
It's depressing how there is no real way to escape this system, assuming you live in the US. Even if you spend cash, you are paying higher prices the store charges to compensate for the fees it pays to card issuers and networks. Companies like Visa, Mastercard, Amex and Discover are largely leeches on the entire economy, not providing anything of value compared to how much they extract.
But knowing the problem is the first step to solving it.
Published: 08-05-2026
HistoriaEconosis
Last updated: 07-05-2026
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