In every culture, there are rites of passage that tell people they are moving into adulthood. Things like high school graduations or Bar Mitzvahs help young people move from one stage of life into the next. One such rite of passage is a person’s first credit card.
Every year, millions of young adults are approved for their first credit cards. A first credit card is an opportunity-an opportunity to build one’s credit and to make purchases that couldn’t be made before. A first credit card is an exercise in responsibility, but also holds the potential to leave many young adults in a financial hole.
A credit card is a gift and a privilege and shouldn’t have to become a burden. To ensure that your first Visa or American Express doesn’t leave you broke and owing, there are some simple rules of thumb to follow. If you stick to these guidelines, your first credit card will be, and continue to be, a great financial tool, rather than a financial burden.
Do not spend money that isn’t in your bank account. One of the pitfalls of credit cards that all cardholders are in danger of is spending money that they don’t have. Because a credit card extends a person funds in advance of repayment, some people get into the mentality that it’s like a loan that they can pay off little by little. This logic isn’t necessarily wrong, but it’s not the soundest way to view your credit card usage. So, before you make a purchase with your new credit card, ask yourself if you could pay the balance of this purchase today with what’s in your bank account. If the answer is no, it might not be the best idea to buy the item now. If you do, you run the risk of falling into debt, which will negatively affect your credit-the opposite of what you want your credit card to do.
Know when to use your credit card. The best and most responsible way to use your credit card is to buy only the items you were going to pay for anyway. Each month you have certain expenses like utility payments and groceries that need to be paid for. Since you’re already budgeting money for these expenses, you can pay for them on your new credit card and then pay off the balance with the money you set aside for these expenses in the first place. That way, you will pay off everything that you need to, build your credit, and avoid debt all at the same time.
Pay your balance on time and in full. One of the dangers of many credit cards is that not required to pay your entire balance when making payments. Most credit card companies will set a minimum payment amount to be paid each month that is only a fraction of what is actually owed. When you make your monthly payments, pay the full amount of your balance. You will pay interest on whatever balance is left unpaid. If, when the payment is due, you are unable to pay in full, then you did not follow the first two tips well. Also, make payments on time. Late fees on credit cards vary from company to company, but there is no need to pay money into your credit card unnecessarily.
Minimize expenses to avoid “emergency” charging.
Utility payments are a great example of emergency charges. A good example are those that utilize budget billing to keep their costs fixed on electricity each month. At the end of the year, they receive an invoice for the amount they went over or under the fixed payment each month, and payment is due within a few weeks from that date. This often leaves you no choice but to add your utility payments to a credit card, and some of these can take months to pay off.
Some areas are monopolized, but in others you have a choice of utility providers. Many people don’t know this and I was one of them. A friend told me about a website that allowed me to compare utility rates and choose the best fit for my family and me.
If you stick to these thee tips, your credit card will be a tool for betterment rather than a shovel with which to dig yourself into a financial hole. Whether you’re making a payment to your electric provider or buying all the fixings for a big dinner, spend wisely and within your means on your credit card and you will be far ahead of the curve.