YOUR FIRST CREDIT CARD
Getting your first credit card may seem like an exciting step towards becoming an adult. But is it? Having a credit card can be a helpful tool when you are going out on your own, however, it can also be a huge burden for years to come if not used wisely.
Whether a credit card will become a beneficial tool to you depends entirely upon how you use the credit card and the warnings that you heed in advance. Let me explain further and share with you how you can make sure that your first credit card experience is the best it can be.
My first credit card experience
I graduated high school at the age of 17 with very little knowledge of financial management. All I knew about money was that having money and being able to afford things depended on my willingness to work hard. I approached my finances in all the wrong ways from the time I started earning money. The truths which I had heard about money I ignored because they did not make sense to me. I did not see a reason to start saving for retirement at a young age, investing was completely foreign to me and I simply had no interest because I felt like I would just lose money because of my inexperience. As a Christian, I had always been told that tithing was important but I never really understood the concept or why I should give 10% of what I made. I was wrong on all of these things and made so many more mistakes with my finances.
I received my first credit card around the time I started college and with no guidance and a high credit limit I proceeded to max out my very first credit card. As I continued along this path to destruction I paid little attention to my spending, saved nothing, and never set a personal budget. As you can imagine I soon reached my credit limit on one card and began working on my next credit card while paying only the minimum on all cards I was using.
At this time whenever something would come along as a big expense I would pull out my credit card. Eventually, everything was being funded by my credit cards because the minimum payments were adding up for all of the cards I was using and I did not have much extra income to spare. At this time I began charging car repairs, phone bills, School books and Tuition, medical bills, and everything that I could pay with a credit card I did. This thinking and spending led me to a very bad place where I was soon paying out more than I had made every single week. Just to pay my monthly bills I was becoming overdrawn at the bank which meant I would then accrue overdraft fees for every charge that exceeded my balance. By the time I had realized the mess that I had created, I was in so far that I could not get myself out easily and I began to feel hopeless.
I began dating my boyfriend Jason (now my husband) around this same time. A conversation we had on finances one day was the first time I was ever challenged to create a budget and become mindful of my spending. I would like to say everything became easier and I was able to pay it all off. Sadly the effects that my financial mistakes and lack of knowledge of managing my finances had on my entire life have been life-altering.
It has been 18 years since that conversation and we have finally managed to pay off all of the credit cards. We only use one credit card each to earn rewards on certain purchases and pay the balance off monthly. We have paid off all auto loans, began to save, invest and I now tithe consistently on every paycheck. My finances are better than they have ever been, but it has taken us a long time to get here. Both my husband and I are now 40 years old. Sadly many years of our lives were spent working long hours and multiple jobs just to get us to where we are today.
My story is the reason that I feel passionate about financial management and helping others avoid the same financial mistakes. If I could not help myself avoid these disastrous choices maybe I can help make a difference for someone else.
Things to know before using your first credit card
Always pay your credit card in full every month whenever possible
Interest rates are rising currently due to inflation
Preventing late fees is important. It can cost you more and lower your credit score at the same time. Always pay your bill on time.
Interest rates matter if you ever have to keep a balance on a credit card high rates can cost you a lot more money
Choose a card that earns you cashback, free hotel stays, or flyer miles
Pay attention to annual fees: many credit cards do not charge these at all. I suggest choosing one without fees to maximize savings.
Make sure you are saving for emergencies. One of the biggest mistakes many make with credit cards is using them to pay in emergencies and having no cash on hand. If you find yourself in this position make a plan immediately to pay the card off in full.
Why are credit cards helpful?
Credit cards help establish good credit. However a bit of warning they are also great at destroying credit the choice is yours. To use them wisely you must consistently use a credit card but pay off the balance in full to avoid additional charges. You must make on-time payments every time to prevent late fees and negative credit score changes.
Do I need a credit card at all?
Credit cards can be necessary to gain approval for cell phone plans and to make certain purchases. As I explained above they help to establish a credit score that will follow you wherever you go and affect everything from interest rates offered to you for auto and home purchases to your ability to get financing or credit approval on almost anything. Paying your credit cards consistently and in full will yield the best results as you continue to grow your credit. Consistent and timely payments, payments in full and proper management of your credit card will help your credit grow and improve.
What can happen if you just stop paying on your credit card?
Paying your credit card bill is extremely important. Even if you cannot pay in full you must pay the minimum payment every month at least. If you do not at least make the minimum payment you will accrue a fee on the card followed by a change in your credit score when it is reported on your credit score for non-payment. With consistent non-payment you will be sent to a collection agency and those interest charges will not go away they will continue to grow. The balance will grow, the card can no longer be used and you will destroy your credit very quickly with this choice to not pay on your credit card.
What happens when you do not pay your credit card off monthly?
When using a credit card paying attention to the amount that you have charged as well as consistently paying the balance is important. This is where interest rates become important because when the balance remains unpaid for a certain length of time during the month interest is then charged. At a lower rate interest is not that big of a deal a few extra dollars added may not make a huge difference but with higher interest rates, the charge is much more than just a few bucks.
Why do credit card interest rates matter?
Consider this example. You use your credit card to pay for lunch every day you are mindful about what you buy and only spend $5 a day for your lunches. By the end of the month, you have spent roughly $100 just for your weekday lunches. That might have surprised you how quickly that added up too. So at this time, you decide to pack your lunch more this month but since you didn’t plan for this expense you have to wait to pay off the balance. By the time you have saved up enough to pay off those lunches you look at your bill and it is now $122 instead that is because with 22% interest on your credit card that lunch that you had thought you were paying $5 for was now $6.10 due to interest.
What is credit card hacking and should I try it?
Credit card hacking is where you choose credit cards that offer benefits such as cashback, gift cards, hotel points, gas points, or Airline flier miles. Credit card hacking can be very beneficial for some people who have learned to manage their credit wisely. It is something many have turned to for help funding family vacations, saving for additional purchases with little effort, and just providing additional income.
Should I try credit card hacking?
Credit card hacking can be beneficial for some but for others, it holds a lot of risks. If you are not consistent and good at managing your financial situation already credit card hacking can cost you more than it can save you. Credit card hacking requires consistent timely payments in full to prevent additional interest. Credit card hacking also requires timely payments to make sure you do not end up with late charges that can also steal the benefits of the card hacking earnings. I do not recommend credit card hacking to anyone until you have become financially stable and can make consistent and timely payments every month in full. Then credit card hacking with the right credit card can be beneficial in your financial management journey.
What is the best credit card to start credit card hacking?
There are a few things that are very important when choosing a card to use for credit card hacking. Look for these specific things when selecting the right credit card to use.
No monthly or yearly fees
Low-interest rates
Worthwhile cashback bonuses, gift cards, hotel points, gas points, or Airline flier miles.
Final thoughts on managing your first credit card
Keep in mind all of these things as you select your first credit card. Make an informed decision before you ever start using your first credit card. Teach yourself to manage credit card usage properly and your experience can be beneficial and positive. If you have questions regarding credit card usage stop immediately and seek the counsel and advice of someone that you trust. Many local credit unions offer credit advisors for free if you are a member that can help you with questions regarding managing and paying off your credit. Most importantly whenever you choose to use credit make sure it is the best card (lowest interest rate and no fees), pay close attention to your spending, pay the bill off before interest is accrued whenever possible, and never forget to pay or make late payments. If you follow these guidelines you are off to a good start.