When I was first off to college and on my own, I received a letter in the mail. The letter promised me a credit line of $500 and included a small plastic card with my name on it. It was a transformative experience because I could buy things I could not get before with that small credit line. What happened was that I started to use that card, and with every ill-advised swipe, I began to bury myself in debt. The credit line was small, but I was in college, and my income was not as significant as it could have been. Thus began my experience with credit, and from there, it became a little more stressful as the years progressed. The reason it was stressful was that I was making bad decisions after bad decisions. Of course, that is what the credit card company wanted to happen. Once you swipe, you become beholden to the credit machine. Then they have you.
Too often, we fall prey to credit because it allows us to purchase indiscriminately. Credit can take over your life once the credit line is reached or exceeded. Paying bill after bill and realizing your balance is only going down by pennies. This is not the way with everyone that has credit. You need to know how to use credit wisely. Indiscriminate purchases will never be the path to take. Using credit to supplement your buying power can be helpful. Just realize that sometimes you can get out of control quickly. Take some time and make sure that you still purchase within your means, and you have control rather than it having power over you.
Take a look at these few tips to ensure that your experience with credit is not rife with issues.
- Just because your offered credit does not mean you should take it
Credit is a valuable tool when it comes to your finances. It allows you to purchase items that you may need and pay them off in smaller portions. Your credit limit can be both good and bad. If the company offers you more than you need, it is all right to decline. This way, you can have a limit but not one so large that you cannot handle the payments. - Pay more than the minimum.
Credit card companies are not there to help you; they are there to make money. Do not think that there is anything more to it than that. So when they send the bill with a minimum payment due, it is not designed for you to pay off quickly. The minimum payments maximize their profit while still giving you a chance to pay down the balance slowly. When it comes to interest, time is your enemy. Pay more than the minimum, so your balance will drop quickly and, in turn, save you a considerable amount of interest. - Choose your rate wisely.
As I said, when it comes to interest, time is your enemy. The other enemy is the rate itself. The larger the rate and the longer you pay, it means more money for the credit card company and less money for you. Somehow that does not seem very appealing. When offered a rate, make sure that you consider what it will cost you and see if you can do any better. Take the rate into consideration how you use the credit card. Place long-term purchases on a lower rate card and short-term purchases on a larger rate card. Better yet, if you can afford it or if the purchase is unnecessary, just pay cash or do not buy it. - Never charge more than you can afford
The easiest pitfall when it comes to credit is letting your charging exceed what you can afford. Sure, you can charge thousands of dollars and only pay $30 a month, but in the end, can you afford to pay that $30 plus the additional to get paid down sooner? Once you charge more than you can afford, you are stuck. - Make sure you know the fees involved.
The most painful thing about credit cards is the fees. There is a fee if you pay your bill late, a fee for exceeding the limit, sometimes a fee for just having the card, and there may be other fees embedded in the fine print. Make sure that you avoid fees as much as you can. If the card has a yearly fee just to have it, you may want to reconsider signing on the dotted line. Paying for the privilege to give the credit card company more profits just seems antithetical to personal finance. Worst of all, do not exceed the limit or pay late because you could be looking at a $35 fee for each occurrence.
So when considering if credit is something you want to jump into, make sure you know what you are getting into and not just looking at the credit line as a cash machine to get whatever your heart desires.
