Having a Credit Card is not bad.
Having Credit Card debt is bad.
Often times, we like to go get a credit card because we don’t have the money to make a purchase that we either want or need. However, the idea is that we do not want to spend money that we do not currently hold. A common question then is, “then why get a credit card?” Credit cards can be good for many things:
- You get perk’s or rewards for spending money on your credit card.
- You can improve your credit score.
- You’re going to get weird looks from making a small impulse purchase (like a bottle of soda or pack of gum); therefore, you are less likely to make that purchase.
- If there is a case of fraud, you can dispute the charges and not be out your life savings.
However, credit cards can also be bad for many reasons:
- We spend more money than we have.
- We pay high interest rates.- you want to make your money work for you, instead of working for your money.
- Debt quickly adds up.
- Credit score can be ruined. – this can cause purchasing a house or vehicle a very difficult task.
Since credit cards are not bad, we want to learn the best way possible to make use of them.
Start out by making small purchases you know you can control. Use gas as just one example. You will only use your credit card for purchasing the gas in your car. You know you have the liquid cash aka money sitting in your bank account, for this purchase. Once the purchase has been made with your credit card- pay off your credit card immediately. What good does this do?
- You are building credit by proving to the creditors you can pay off your debt
- You are not paying interest; avoid this whenever possible
- By immediately paying off your debt, you are not allowing the debt to add up
- In return for paying off your debt, you will get reward points that overtime add up for you to get cash back, or reward dollars towards airlines, etc.
A few things many people will not tell you:
Once you have a credit card you do not want to close that line of credit. Closing that line of credit will lose your good credit history and in turn can hurt your credit score. After a few months of being a great credit card holder, ask your credit card company to increase your limit. Not because you want to use the rest of your limit. The increased limit will lower your balance to credit limit ratio, which will do wonders to your credit score.
Keep these small pieces of information mind and you will be in good shape when making large purchases that take your credit into mind (ex. Purchase a Home, Buying a Car or Applying for Loans). Check out a few of my favorite resources on Credit Cards and Credit to better situate yourself for the future.
Credit Card Debt by Alexander Daskaloff
The Total Money Makeover Workbook by Dave Ramsey