The Fundamentals of Loans and Credit for Newbies

As you probably know at this point, credit cards and loans are just as useful as they are potentially dangerous. Thanks to loans and credit cards, you can make a variety of purchases and simplify your finances. However, if you do not handle your credit cards and loans, you are setting yourself up for debt. If you are new to credit, loans, and how to pay credit card bills this article is for you:

What you need to know about Credit Cards

When dealing with credit cards, you need to start by identifying what you want in a card before you get one. Here are a few of many factors you should consider as you search for the perfect credit card:

Credit Score

Your credit score plays a critical role as you search for credit cards. It determines your chances of getting the best deals on credit cards with essential benefits. In a nutshell, your credit score is a three-digit number that ranges between 300-850 and shows your creditworthiness. If you manage to rack up a credit score of 700 or higher, you stand a chance at getting the best credit cards with a multitude of benefits.

credit score

You will need to check your credit score from time to time. However, know that you might be charged when you run a credit check. Make sure you go for the free options to run a credit score check.

Credit limit

The credit limit is a measure of how much your lender is willing to allow you to borrow. The lender mainly looks at your credit profile before deciding how much to lend you. If you have a solid credit profile, you can up your chances of getting high credit limits. However, a mediocre credit profile will make it difficult for you to get the credit limits of your choice.

Fees, charges, and penalties

This should go without saying, but you need to make sure you factor in the fees and other charges you are liable to pay. Most cards require you to pay transaction fees. However, you need to find out how much you have to pay for late-payments and if you want to increase your credit limit. As a rule of thumb, choose from an array of credit cards that have reasonable charges.

If you are transferring a balance, for instance, you should ideally go for a credit card that does not require you to pay a transaction fee or interest for at least one year. You do not have to pay extra for reward programs either because several reward programs do not charge.

Interest or Annual Percentage Rate (APR)

The interest or APR is another factor you need to consider. Interest rates are fixed or variable. Some credit cards charge fixed interest rates, making it easier for you to plan your expenses. Those with variable interest rates, as you probably know, do not make it easy to predict your expenses.

In case you didn’t know, credit cards with fixed interests can also change their interest rates for many reasons. Some reasons include late payment of credit card bills, exceeding the credit limit, etc. The lender can change the rates at any time. However, they must inform you.

Needless to say, you need to determine the finance charge calculated and how much you have to pay. A commonly used method is that of average daily balance. As per this method, the sum of the daily balances are divided by the number of days in the billing cycle.

How to avoid credit card debt?

Here are a few tips to follow to handle avoid getting into credit card debt

Stick to your affordability

Despite being simple and obvious, rarely do people ever take this tip seriously. People tend to get carried away and splurge on a lot of products, subscriptions, etc. If you want to avoid debt, live within your means and cut down extra expenses. A failure to do that will lead you into a world of debt that you will struggle to navigate and clear.

Do not lend your card

Since the card is in your name, you should know that it is your responsibility to manage your credit card expenses and repayments. If you hand it over to someone else, their expenses are on your hands. Being unable to make payments on time will lead you to make payments with charges, which is a sure-fire method to lower your credit score. As a rule of thumb, do not lend your credit card to anyone else.

Do not initiate bank transfers

Here’s another thing you are better off without. Balance transfers from a high-interest rate credit card to a credit card with a low-interest rate may be tempting. However, this will backfire in the long run because you will be liable to pay a higher balance overall after the fee is levied.

Avoid cash advances

It can be tempting to take out cash advances frequently for a bunch of expenses. However, cash advances are expensive. You generally have to pay a high transaction fee and interest. Furthermore, you do not get a grace period to avoid these charges. In short, stay away from cash advances.

Ways to repay your loans quickly

You probably have a decent idea about what to look for in a credit card. Now, let us shine a light on how to repay your loan. While you might be tempted to apply for a loan to ease your expenses, you ought to keep in mind that you will be required to pay interest. Your inability to manage your loans properly will land you in financial dire straits. Here are a few tips to follow to quicken your loan repayments:

Extra repayments help

Making more payments helps you get your loan debt out the way early. The earlier and more you pay, the higher your chances of evading interest and other charges. In other words, you get to reduce the principal amount. If you see a little extra money come your way, use it for extra loan repayments and clear your loan earlier than you may have expected.

Higher down payments

This tip also helps you chip away at the principal amount. The idea is to clear your principal amount early so that you do not have to pay interest or other fees and charges that come with the loan. If you have the money, consider making a substantial down payment so that you do not have too big a principal amount to repay.

Dip into your savings

If you have an outstanding loan, you may have to dip into your savings to clear it. Of course, you can clear your loan faster if you have a sizable amount in your savings account. Ultimately, you need to repay as much of the loan as you can, as soon as possible, if you want to avoid paying interest.


As a newbie, it is vital to understand these basics of credit and loans before you even consider applying for one. As you probably know by now, some credit cards and loans come with exorbitant interest rates and charges that you ought to be aware of before you consider going for them.


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