It Pays to Discover… How to Manage Credit Wisely

By Julie Ann

New skinny jeans from the mall: $44. Plane ticket to Miami for spring break $382. Fuel top-off, Cool Ranch Doritos and a Super Slushie from the Quickie Stop: $18.20. Dinner out with friends: $16.13. Getting into serious debt and ruining your financial future: Priceless.

Credit cards. To function in society it seems you can’t leave home without one. They are convenient and easy, but can haunt you for years if misused. However, if you use your credit cards wisely you don’t have to fear sabotaging your finances for life.

The first question you may have is how to get a credit card? If you’re in college, it might be as easy as filling out a postcard form and mailing it in. Otherwise, you might need to establish a credit history, which can be a Catch 22 of sorts. To get credit, you need credit. It reminds me of a story I once heard about a young actor who couldn’t act in a film until he had his Screen Actors Guild card but he couldn’t get his SAG card until he had acted in a film. One of the best ways to obtain a credit card is through your bank. If you have an existing relationship in which you have proven yourself a good customer, your financial institution might be willing to take a chance and extend you some credit. Another route is to acquire a first credit card from a department store or gas station. Because you can only use your card at their establishment, they are often easier to obtain. Finally, if your lack of a credit history is still a problem, try a secured credit card.
Essentially, you’ll deposit money in an account and the lender will hold onto this money to ensure that you make your payment.

When I got my first credit card I went with a credit/debit from my bank. This helped me learn how to wisely use a credit card because the funds were coming directly out of my checking account. After a few years I decided to get a regular credit card and went through my credit union. I’ve avoided store credit cards and toss out the weekly offers that arrive in the mail. I don’t see that I have a need for more than two cards.

If you have a choice of what card you can get, select one with cash back rewards.

The card is key. Once you’ve got it, where should you use it? Don’t go out of your way to use your card – there will be plenty of times when you have no other option or it’s not convenient, such as online retailers, airline reservations and pay-at-the-pump gas stations after the manned booth is closed. Using your card only when absolutely necessary will get your card plenty of action, build your credit history and keep your statement balance down. When not to use the card: to buy big ticket items you can’t afford any other way. Only use your card for big purchases if you know you’ll have the money to pay it off when the bill arrives. Avoid using your card for dining out, groceries and trips to the mall. Sometimes it’s difficult to avoid using it for emergencies, such as a vehicle repair, but do your best to pay it off ASAP!

When your monthly bill arrives make sure that you pay it promptly and in full. Missing a payment or being late will do major damage to your credit score in short order. Plus, you may have to pay a late fee ($30.00 or more). You will also want to pay your bill in full to avoid interest payments. New credit card rules now force companies to print the estimated total with interest if you were only to pay the minimum amount. Take a good look at that figure. For example, if you were to buy everything I listed at the beginning of this article, your total would be $473.85. Assuming a minimum monthly payment of 2.5 percent (or a fixed $11.85) and 18 percent interest, it would take five years and two months to pay off those purchases, making only the minimum payment. And you would have paid $255.03 in interest. You could practically buy another plane ticket for that amount!
Finally, beware of identity theft. A few months ago I opened up my statement to find a charge for $25.45 from a lighting company in Tampa. I was pretty sure that I would have remembered buying a lamp from Tampa, so I called the number listed on the card. It was disconnected! So I called my credit union to report a fraudulent change. They cancelled my card and issued me a new one. I then had to write a letter swearing that I did not make the charge nor did I authorize anyone else to do so on my behalf. The credit union then sent me a bunch of paperwork I had to fill out and have notarized. In the end the charge was removed from my card, but boy was it a giant hassle! Be prepared to watch for unauthorized activity and spending quite a bit of time and effort resolving issues should they arise.
Credit cards can make your life easier, but they can also easily ruin your life. There is a certain convenience and even a necessity about them, but be sure to use your brain before throwing down your plastic or you can quickly find yourself everywhere that you don’t want to be.

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