Please be cautious to use credit wisely. Those who loan you money want to collect a fee (interest) for loaning you that money. When borrowing, you are always looking for the lowest interest rate you can get in order to pay the smallest fee for the right to “borrow” that money. That pizza may be $15 on Friday night, and you may think nothing of it, but if you charge it on a credit card without paying the balance in full each month, you are going to end up paying more for that pizza than $15. You may not have made that choice had you realized the true cost.
In the future, when you begin to invest, you will be the one collecting the interest. In this case you want to get the highest rate of return on your money, or the highest interest rate you can get when you “loan” someone your money. When you invest in the stock market, you are purchasing shares of stock in a company and hoping their share price will go up in value. Sometimes people buy stocks that have stable share prices, but pay out good dividends to the shareholder when the companies make a profit.
Compound interest works like this. Say you loan $100 to a friend and charge him 5% interest compounding annually. If he paid you back in one year, he would owe you $105. If he paid you back in 2 years, it would be $5 in interest in the 1st year and $5.25 in interest for year 2 because after year 1, you took 5% of 105. The interest compounds year after year. This may not seem like a very big difference to you with these examples, but over 30 years, your $100 loan at 5% interest compounding annually would be $432.19. Imagine if that were $10,000 you were borrowing for 30 years at 5% compounding yearly. It would be $43,219. Check out the link from the SEC that we have provided below to enter your own numbers.