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No matter what the 27 potential applications you get in the mail each week claim, there is nothing simple about a credit card. They’re handy to have (there’s no doubt about that), but it’s also extremely easy for them to get control over you. Here’s what you need to know to stay in control of your spending.
1. You Need Credit to Get Credit
If you ever want to buy a house or do anything else that takes an obscene amount of money, you have to have credit. It’s not something just appears, it’s something you have to earn. It’s not that you have bad credit — it’s just that you don’t have any.
Credit cards are a really easy way to build credit. Unfortunately, they’re a really easy way to build bad credit too. So, if you can get a credit card, use it only for gas, and pay it off in full at the end of the month, you’re golden. It’s when you start using it to live above your means because “you can just pay it back eventually” that you start to get in trouble.
2. Balance Transfers Aren’t as Easy as They Seem
When you max out one credit card (or forget to make a payment and watch your interest rate shoot up to 29.99%), it can become almost impossible to get the thing paid off. With each payment you make, you’re effectively paying about $10 on what you owe, and the rest is just accrued interest that you’re paying off as you go.
A lot of credit card offers say “free 0% balance transfer,” which is extremely enticing. When you’re new to credit cards, it seems like if you’re willing to move your debt around you can live your life taking advantage of various 0% APR incentives until you finally pay your debt down. Unfortunately, the new credit card limit isn’t always as much or more than the existing amount of credit. Which means instead of making one credit card payment, you’re making two. And that, my friend, is a nasty surprise.
3. They Never Go Away
Unless you pay off the card, the only other way out of your debt is bankruptcy. This isn’t one of those things you can ignore and just expect it to go away, like a stray cat. Once you start putting money on it, it’s still your money — you’re just paying someone else to use it in advance.
Unfortunately, to have really good credit, you have to have a lot of credit lines. And the easiest way to get that is to get a lot of credit cards. But if you max one out, and move on to the next one (instead of paying your debts as you go), all you’re doing is using the tools you have for good credit to turn your credit bad.
4. Variable APR = Extremely Variable
Credit cards tend to offer you a period of six months to a year with no interest. And that’s great — take advantage of it. But don’t take such advantage of it that you can’t pay it off before your time of no interest is gone. And if you’re late, you’re suddenly paying interest. And since APR depends on the market, when that year is up, the chances that you’re going to be paying a 30% interest rate (especially if you’re just starting out in the credit world) are pretty good. Or bad, as it were.
5. Leave Them at Home
Carrying around all your credit cards is a huge mistake. It makes it way too easy to spend all that pretend, “free” money you have lying around on impulse purchases. If you want a credit card, keep it for emergencies. Which means leaving it at home, in a drawer, where you have to work to get to it (and can’t just buy that $1300 couch because it’s prettier than the perfectly nice, functional couch you have at home).
If that’s not working out for you, give them to someone you trust, and have them hide them, so that you have to discuss the risks and benefits of using your cards with someone else, instead of just talking yourself into it.