The majority of Canadians today are struggling with credit card debt. As high school students begin to earn more money and wish to become more financially independent, the option to get a credit card may seem appealing. Before one begins using a credit card, it is important to understand how it works and how to use it wisely in order to stay out of debt.

A credit card is different from a debit card, which takes money directly out of your bank account when you make a purchase. Instead, a credit card is attached to a credit account from a bank. Every time the card is used, money is borrowed from that bank, which you will be responsible for paying back at the end of the month. Each card has a credit limit, which is the maximum amount of money you can owe the bank. Once you have paid off the loans, you will have available credit again.

It is extremely easy to get into trouble with credit card debt because of its Annual Percentage Rate (APR). The interest rate on unpaid credit card bills is 20%, which is extremely high. If the card’s statement balance is not paid off on time, this interest will begin accumulating until the amount owed is much higher than it originally was. Fortunately, with smart decision making, it is relatively easy to stay out of debt. The most effective way is to only use the credit card when you have the money to pay the amount owed on time. Spending money you do not have is risky because you will owe more in the long term. It is also smart to stay below your credit card limit, and pay your full statement balance each month, before the interest begins to build up.

Learning about financial literacy early will increase your chances of being financially stable as an adult. For more information, there are plenty of useful books to read, or websites to visit that can teach you how to be smart with your money.