Now that you understand good debt versus bad debt, let's talk about credit cards - one of the most common and powerful financial tools.

Credit cards give you a line of credit you can use repeatedly, up to your credit limit.

Engagement Message

Name one key way a credit card differs from a regular loan?

Credit cards have some real benefits when used responsibly. They help build your credit history, offer fraud protection, and provide convenience for purchases.

Many cards also offer rewards like cash back or points for spending.

Engagement Message

What's one benefit of credit cards that appeals to you most?

But here's the danger: credit cards make spending feel easy and painless. You can buy now without immediately feeling the financial impact.

This psychology leads many people to spend more than they can afford to pay back.

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Have you ever noticed spending differently with cards versus cash?

The key to credit card success is simple but crucial: pay your full balance every month, not just the minimum payment.

When you only pay the minimum, you're charged interest on the remaining balance - often 18-25% annually!

Engagement Message

If you owe $1,000 and only pay minimums, how long do you think it takes to pay off?

That $1,000 balance could take over 10 years to pay off with minimum payments, costing you over $1,800 in interest! This is why credit cards can quickly become bad debt.

Always aim to pay your full statement balance by the due date.

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Realistically, what percentage of your card spending could you commit to paying off every month?

Remember credit utilization from our score factors lesson? Keep your credit card balances below 30% of your limit - ideally under 10%.

If your limit is $1,000, try to keep your balance below $100 when the statement closes.

Engagement Message

Which tool would you use to track your balance and keep utilization under 10%?

Avoid these common credit card traps: cash advances (expensive fees), store cards with high rates, and using cards for things you can't afford.

Also never miss payment due dates - late fees and score damage aren't worth it.

Engagement Message

Which of these traps do you think snags most people, and why?

Here's a smart strategy: treat your credit card like a debit card. Only spend money you actually have in your bank account.

This way you can always pay the full balance and still build good credit history.

Engagement Message

What's one quick reminder you could set to check your bank balance before big purchases?

Type

Sort Into Boxes

Practice Question

Let's test your credit card knowledge! Sort these actions into smart habits versus risky behaviors.

Labels

• First Box Label: Smart Habits
• Second Box Label: Risky Behaviors

First Box Items

• Pay full balance
• Check limit often
• Track spending

Second Box Items

• Pay minimums only
• Cash advances
• Ignore statements