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Credit Cards
Having a credit card is handy, especially in today’s world where virtually any and everything can be purchased with a swipe of a card, or the click of a mouse. But like most things in life, having a credit card, and the responsibility of maintaining a line of credit, can be a double-edged sword. The debt that amasses from credit card abuse can be a financial trap that is hard to escape. However, by following some very simple guidelines you can enjoy all the benefits of owning a credit card, without worrying about the pitfalls:
Pay your monthly balances – This sounds like the most obvious thing in the world, but it is often the most overlooked. The better you are at paying off your monthly balance in full, and on time, the less you have to worry about ever finding yourself mired in credit card debt and hurting your credit score. Furthermore, being consistent in paying of your balance each month is a great discipline to learn, not just for how you handle your credit cards, but how you handle all aspects of your finances. Paying on time and in full is also a positive sign that gets noted on your credit report, and will qualify you for much better loan, mortgage or credit options in the future
Never owe more than you can repay – A credit card is a convenience, and just that. You should never have a credit card balance that you could not pay off in full if you had to. Think of a credit card as a short term loan: by never borrowing more than you can repay, you ensure that your credit card debt stays manageable, and that your credit line remains in good standing. Most financial say that if you have 3-5 cards that are maxed out, and you aren’t on the way to paying them off, you’re in a terrible position.
Never use a credit card to pay off a credit card – A lot of people think they are doing something clever by paying off one credit card with another. Nothing could be more false. This kind of “passing the buck” will almost always lead to financial difficulty, once the buck can’t be passed any longer.
Retain sole control of your credit cards – Never give your cards out, even to family or friends. If purchases get made without your knowledge, it can land you in a hole you never even knew was being dug, and only you will be responsible for paying your way out of it.
Know your balance at all times – Save receipts; keep a ledger as you would with a checkbook. Compare your receipts to your ledger, and your ledger to your statement at the end of each month. This kind of book balancing will help you develop a strong mental calculator to track your spending, and will make you intricately aware of your purchasing patterns so that if any unusual or unauthorized spending were to show up on your statement, you would recognize it immediately.
Parents that have children about to leave for college should be especially wary. College campuses are prime ground for credit card companies to pitch their product to unwary students who are eager for financial independence, without fully understanding the responsibilities that go along with it. Parents should always educate their children about credit card use before they leave for campus. How credit cards work, terms like “interest rates,” “annual percentage rates (APR),” and what maintaining a strong line of credit means for their future as homeowners, car owners, or their hopes of being debt-free, financially independent adults down the line.
Furthermore, parents need to teach their child how to assess the overall cost of a credit card, factoring in interest and such, as well as how to compare different cards to find the best deals for them. Students themselves should be aware that every credit card application they successfully fill out will appear on their credit report as an established line of credit, not matter what they do with the card. This fact is almost always overlooked.
If they wish to be more actively involved with their child’s credit management, parents can cosign with their child for prepaid credit cards, or cards with low credit limits of only $500 or $1,000, before the child heads off to school. Whatever the case parents, be aware: you always want to educate your children on proper credit management before the companies do it for them. By giving your child the facts up front, you can plant the seeds that will grow them into responsible credit card holders down the line.
Topics: Credit Cards |
