- Principal is the amount of the original loan that is used to calculate any subsequent interest incurred as a result of the loan. If you use you credit card to purchase a $300 product and do not pay the principal by the date determined by your credit card company, you incur interest that carries over to the next month's balance. Nonetheless the principal on the loan is still $300.
- Unfortunately, people do not always use credit responsibly. While you cannot avoid the principal on a loan, so long as you borrow money, interest is almost always avoidable. Neglecting to pay your entire balance each month or making only the minimum monthly payment can dramatically increase the total amount of money owed. Sometimes, interest payments increase to such a degree that the total amount of debt incurred from a single purchase can be 50 percent more than the amount of the original item.
- Given the widespread use of credit cards, it has become increasingly important to have good credit. When using your credit card you should always keep in mind that you are borrowing money, which eventually you need to pay back. Using credit to purchase goods and services can be convenient, however, your primary motivation in doing so should always be to establish good credit for large purchases that require credit such as autos and homes, and not to simply buy more incidentals.
- Using a credit card is easy; however, using it responsibly requires knowledge and discipline. Credit counseling is available through a variety of resources, including universities, seminars, government agencies and nonprofit organizations. When looking for a credit counselor be sure to look for those that are licensed and provide free or low-cost services.
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