Life Events

Credit cards are convenient and can build a positive credit history, but they can also become expensive. These answers explain how to use them well.

How is interest calculated?

Most cards charge interest based on an annual percentage rate (APR), applied to your balance daily. If you pay your statement balance in full by the due date, you usually avoid interest on new purchases through a grace period. If you carry a balance, interest begins adding up, and cash advances often start accruing immediately at a higher rate.

What happens if I only make the minimum payment?

The balance shrinks very slowly, and you may pay far more in interest than the amount you originally charged. Your statement is required to show how long repayment would take at the minimum payment. Paying more than the minimum, when you can, makes a large difference.

How do cards affect my credit?

Payment history and the share of your available credit you are using are two major factors. Paying on time and keeping balances low relative to limits generally helps. Late payments, maxed-out cards and frequent new applications can hurt.

What fees should I watch for?

Common ones include annual fees, late fees, over-limit fees, cash advance fees, balance transfer fees and foreign transaction fees. Read the terms before you accept a card, and ask whether a rewards program justifies any annual fee.

Are balance transfers worth it?

A transfer to a card with a low promotional rate can save interest if you pay down the balance before the offer ends. Check the transfer fee, the length of the promotion and what rate applies afterward. Do not keep charging new purchases to the old card.

Are rewards cards a good idea?

They can be, if you pay in full each month. Rewards rarely outweigh interest charges if you carry a balance. Be aware that some cash-back or travel rewards may have tax consequences in specific situations, such as when they result from a bank bonus rather than from spending.

Can I deduct interest on credit cards?

Interest on personal credit card debt is generally not deductible. If you use a card for business expenses, the business-related interest may be deductible. Keep personal and business charges separate to make this simple.

How can I protect against fraud?

Review statements often, set up account alerts, use strong passwords and be cautious about sharing card numbers by phone or email. Report problems promptly.

If you use cards for your business, our bookkeeping services can keep your records clean, or you can contact us with other questions.