Credit Card Debt Explained | KQED News

Which best describes how a credit card works?

• The credit card company extends you a line of credit. You purchase "stuff" and then have the choice to pay the balance in full or a minimum payment each month.

• The credit card company extends you a line of credit. You purchase "stuff"  and the purchase gets directly paid with funds in your checking account.

• The credit card company extends you a line of credit. This is free money that you can use to purchase the "stuff" that you need.

• The credit card company extends you a line of credit. You then pay a small percentage of the cost of those purchases in one annual payment.

What is the advantage of paying your credit card balance in full each month?

• You pay only a small amount of interest. 

• You have less of your credit limit available, therefore, less temptation to spend. 

• You avoid paying any interest and fees.

• You will incur only a small "paid in full" fee on your next credit card statement.

What is an outstanding balance?

• The amount you still owe after you have made your most recent payment

• The amount you spent in total

• The amount you still have available in your line of credit

• The amount you paid in your minimum payment

Why is it more difficult to get out of debt when only paying the minimum payment?

• Your credit limit always resets, so you have a lot of spending power each month.

• Your entire minimum payment goes toward principal and the interest continues to compound.

• The majority of your minimum payment is going toward interest and finance charges and only a small amount toward the principal.

The video advises you to "be a deadbeat". What does that mean?

• Make the minimum payment on your credit card on time each month.

• Pay your credit card bill in full and on time every single month, thus paying no interest or fees.

• Never open a line of credit so the credit card companies do not make any money.