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They Can Be Beneficial Tools Or Your DetrimentI still remember the first time my parents let me use their credit cards years ago. My first thoughts were:
1. This is so much fun!
2. I now understand how easy it is for people to get into credit card debt.
My first credit card didn’t come into my life until a couple of months after I graduated from college. The main reason I wanted to obtain a credit card was so I could gain travel points for purchases I was already planning to make, earn cash back, and buy a new laptop that I didn’t have the cash for at the time.
I was never a fan of credit cards growing up, and I never really knew what all they were about (from personal experience) until after college. I simply knew that many people used and overused credit cards, and I also knew many people had a copious amount of debt from abusing these powerful plastic cards.
I now finally understand why many people find themselves in the credit card trap. You can literally buy whatever you want (depending on your credit limit, of course) without having to pay for it all back right away.
Zero Percent Interest
Many credit cards offer a beautiful perk called “Zero Percent Interest.” Hence, you can get a credit card that offers a zero percent interest rate for a period (e.g., 12–15 months) and not have to pay anything more than what you spent.
Despite credit cards offering ‘beautiful opportunities’ and basically free loans with no interest, you still must pay them back eventually.
Many people who obtain zero percent interest credit cards usually keep making purchases but only pay the minimum payment; before these people even know it, a year has passed, and they have either maxed out their credit card or are sure as hell close to it.
The credit card companies know that many people will do this, which is why they HAPPILY offer zero percent interest to their fellow credit card users and applicants. And once the zero percent interest is over, the new interest rate will be anywhere from 10–30% percent (in many cases).
Sometimes people don’t even know what their interest rate will even be after the zero percent interest phase because they didn’t care to take note of this information when they first got the card; it is easy to not concern yourself with a future interest rate that will not be in effect until one whole year (or more) later.
Takeaway
Take advantage of credit cards with zero percent interest, but be sure you pay off the balance before the interest kicks in.
Credit Card Companies
Credit cards are a genius idea. Most people like consuming more than conserving; credit card companies know this and make billions of dollars off this simple fact.
Perks & Benefits – Pros
My personal favorite credit cards are the ones that offer you points towards hotels and flights, offer no interest rate for at least a year, and give cash back on purchases made by the card.
Credit cards are most useful for these things listed below (but not exclusively limited to these things):
1. Opportunities to obtain rewards and benefits
2. Emergency expenses that you plan to pay back within 1–12 months
3. Business opportunities
If you are getting a credit card to make frivolous purchases and do not expect to make anything more than the minimum payments, then a credit card is probably not within your best interests.
Credit cards are neither good nor bad; it is how you utilize a credit card that determines whether it is positive or negative.
Some people say do not use credit cards at all. Still, credit cards can be handy, especially if you are going through a financial hardship and do not currently have as many liquid funds to utilize.
A credit card can be used to help you save money in the future by earning you points towards vacations, hotels, car rentals, and other perks. And credit cards can be used for business purposes and to build wealth (if you utilize them correctly).
Takeaway
Credit cards can be used in a multitude of ways, but you must discover the best way to use a credit card without hurting yourself in the process. Understand the benefits of credit cards and which ones you desire to take advantage of. Do your research on the different types of credit cards before signing up for one.
Automatic Payments & Responsibilities
Always, always, always, always, always set up automatic payment plans for every single bill that you have, even if you are good at remembering when to pay your bills on time; we are all human, and sometimes things happen, which inevitably lead to us forgetting to do something as simple as paying a bill on time.
If you want to maintain a good financial rapport and credit score, then you must ensure you always make your payments on time.
If you borrow money from someone, have the respect and decency to pay them back on time. I understand if a person is going through a tough time and misses one or two payments, but not paying on time can affect your financial rapport and your ability to obtain all sorts of loans and credit opportunities, if you ever need them (e.g., house loans, car loans, credit lines, etc.).
Paying your credit card bills on time also helps build up your credit score if you decide to utilize credit during your lifetime. If you pay on time or early, lenders will consider you a dependable loan and credit user and reward you for being responsible. Some lenders will even offer incentives for setting up automatic payments.
Takeaway
Set up automatic payments for your credit cards, period. Just do it.
Know Your Purpose
When I got my first credit card, I had my exact purpose in mind. Credit cards are tools; they are not toys to be played with irresponsibly. Utilize credit cards to your advantage, not to your disadvantage; furthermore, have the discipline to use credit cards only when you really need to or are using them for a specific purpose. Commit to sticking to your purpose for getting a credit card.
Takeaway
Have a purpose and plan for your credit cards. It is important to get the right credit card for your needs and wants. If you want a credit card to rack up travel points, then don’t waste your time getting or applying for a different credit card that doesn’t serve this goal. Stay on your intended path, and your relationship with credit cards will always be positive.
Hard Inquiries
A hard inquiry is when a lender reviews your credit background and history when you apply to obtain credit with them. These can affect your credit score, and it is not a good reflection if you have multiple hard inquiries or denied applications in a short period of time.
When you are shopping around for a credit card, try to get pre-approved first; this does not guarantee your approval, but it does give you a feel for your chances of getting approved.
Also, do your research and make sure you apply for a credit card that you have a high percent chance of getting approved for based on your credit score.
If you need to apply for two credit cards, then do just that, and apply for them on the same day (doing this will ensure the hard inquiries fall off your credit report at the same time). You can also apply for one credit card and then wait a couple of months before applying for the next one, so it does not affect your credit score too much.
Takeaway
Applying for credit can affect your credit positively or negatively. Sometimes, your credit score will increase after applying for a credit card because your credit limit has increased, which may lower your overall credit utilization. Other times, applying for credit can negatively affect your credit (e.g., applying for credit and getting rejected).
Cash Life
If you plan to pay for everything outright with cash and don’t care about potential lenders or credit card benefits, then none of this stuff really applies to you. If you buy everything with cash, then having a high credit score and building a solid credit history doesn’t matter all that much. In my opinion, the cash life is an excellent way to live. But credit cards provide too many benefits and security for me to ignore or not implement them into my lifestyle.
Takeaway
If you’re going to live a cash life, understand the security you might be opting out on.
Credit Card Pay off Plan
If you have multiple credit cards with balances, here is an example pay-off plan you can implement to get all of your balances back to that beautiful zero.
Example
Step 1: List all credit cards with their balances
Step 2: Order all credit cards from the smallest balance to the highest balance
Step 3: Create a debt repayment plan and set a date to pay everything off
Step 4: If you have several credit cards see about consolidating them
Step 5: Ensure all credit cards are set up for automatic payment
Step 6: Pay extra on the smallest credit card until it is paid off
Step 7: Add the monthly payment of the paid credit card to the monthly payment for the next card with the smallest balance
Step 8: Repeat step 6 and 7 until all credit cards are paid off
Discovery – Pay Off 6/30/0000
Balance: $600.00 | Min. Payment $20.00 + $80.00 (extra)
2. Wells Fargo – Pay Off 12/31/0000
Balance: $833.00 | Min. Payment $25.00 + ($100.00 from Discovery Card)
3. Best Buy – Pay Off Goal 09/30/0000
Balance $2,500.00 | Min. Payment $40.00 + ($125.00 from Wells Fargo & Discovery Cards)
Takeaway
To pay off credit cards, you need to put a strategic plan in place and follow it.
FICO | Credit Scores
Listed below are the credit score ranges in case you are unfamiliar with the ranges. Discover where you rank currently (for free) at Credit Karma. It is consequential to consistently check your credit score to ensure that all the information and accounts showing are correct.
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Make it a note to check your credit score regularly to catch any type of fraud right from the start. Also, your credit karma account can notify you when any credit changes occur or accounts are opened in your name with your social security number. Stay informed.
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This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.
This content is for informational purposes only — not professional advice. Consult a qualified professional before making any major decisions.