Credit and debt are linked to each other, but are two very different things. Credit sounds great, but it causes debt. Debt can be financially debilitating.
History
Consumers have been purchasing via credit since the 1800s; i.e., taking away goods with the promise to pay later. Plastic credit cards debuted around the mid-1900s.
Definitions
Credit is the ability to buy something with the promise to pay later.
Debt is what somebody has (or goes into) who has used credit to make purchases.
For example, Sue has a MasterCard with $1,000 credit limit. She charges $400 worth of goods on her MasterCard. Sue now has $600 credit and $400 debt she must pay back.
Function of Credit Cards
According to Emily Starbuck Gerson and Ben Woolsey, writing for Creditcards.com, the first bank-issued credit card was introduced in 1946. A consumer made a purchase with the credit card, the merchant forwarded the bill to the bank and the bank paid the merchant. The bank then collected the money (the debt) from the consumer.
Obligations
A merchant is not required to sell to people on credit. In the past, merchants would sell on credit if they believed they could trust the person to pay the debt later. After banks started backing credit cards, merchants had a better guarantee of repayment.
Misconceptions
Credit is not free money. When people use credit, they go into debt. They must repay the debt.
Warning
Banks make money giving credit by charging interest on debt accrued. Let's go back to Sue; she has a credit card limit of $1,000 and she charged $400. If Sue pays the $400 debt in full within, for example, 25 days, she only pays the $400.
If Sue pays $100 of her debt and pays the other $300 later, then the $300 accrues interest. For example, she will owe $305 to the bank instead of $300. The bank keeps the $5. Using credit and going into debt can be expensive.
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