Please, please, please be smart! Getting your first credit card can feel like you’re being handed the keys to the kingdom. But don’t go crazy; you could end up paying for it (literally) for years to come. If you use it carefully and responsibly, a credit card can be a sweet financial tool because it’s so convenient and often safer than carrying cash. It’s also great for emergencies or for times when your cash flow is temporarily slow. Plus, a credit card can help you establish or build your credit rating.
However, many people abuse credit cards by purchasing things they don’t really need and cannot afford, just because their credit limit allows them to do so and they have zero will power. If you don’t have a plan to pay off purchases in a timely manner, the cost of carrying that credit may be more than you can handle in the future.
Be MoneyStrong and use financial tools to your benefit. It will make you smarter now and stronger later. Really.
Consider the following:
Let’s say you purchase an item for $750 on a credit card with an 18% Annual Percentage Rate (APR), then you stop using the card completely and only make the minimum monthly payment (based on 2% of the outstanding balance or $20, whichever is greater). It would take you 4.6 years to pay off that debt. In addition, you’ll end up paying $1,110 on that $750 item because of the compounding interest. Not such a great deal after all, huh?
Being Responsible With Your New Superpower
Here are a few guidelines to help you avoid getting into financial trouble.
- Limit yourself to one card.
- Separate “wants” from “needs.”
- Pay off as much of the balance as you can each month.
- Stay grounded.
- Check your statements.
- Stay in touch with your credit-card issuer; you are still responsible for making
payments on time, even if you move.
Read the Fine Print
As you graduate to higher and higher credit limits, you’ll probably start getting a lot of requests from other credit-card issuers to use their cards. But be aware – there are a number of costs and fees associated with credit card use – some clear and some, uh, not so much.
