Credit Cards Aren't so Scary
How to Use a Credit Card without the Credit Card Using You
If you're anything like me, you hate owing people money. Even if they say "don't worry about it," that's still the only thing on your mind until you pay them back. So why are credit cards any different? Honestly, they're not.
Be real with me, what is your biggest fear about getting a credit card? Interest? Annual fees? Or you just feel like you don't need one, so why risk it? All are very valid for first time card holders, but let's put some of those to rest:
1. Interest? Not interested!
Interest can be a touchy concept, but ultimately it boils down to how much you're paying the bank for letting you "borrow" their money. This is how you can easily avoid it: just pay off your balance before your due date. Here's a scenario, your brand new credit card has a $1,000 credit line, but they smacked you with a 25 percent interest rate because it's your first credit card (Ouch!) That essentially means, for every $1 you "borrow", you have to pay $1.25 back. Here's the catch, your bank only cares how much you "borrow" past your due date. Say your due date is February 16, that means you could spend all $1,000 on your Valentine, but if you pay back $1,000 by February 15th, your balance is $0.00- the bank considers you all squared up. You don't owe any more than you took out. Of course, Banks want you to pay interest (that's how they make money) so they throw other numbers at you. What trips up most people is the "minimum payment due" (usually $25-$35) which is the minimum your bank requires you to pay back before your due date to avoid being considered "late". Now, if your goal is to avoid paying interest, you don't want to pay the "minimum", you want to pay ALL OF IT. Now, when it gets down to the nitty-gritty, if you actually need to borrow money for an emergency and you don't have enough to pay it back, you still want to pay back as much as possible before your due date. (Using the same scenario) say you spent $1,000 on car troubles- if you pay off $600 by your due date, you only have to pay interest on the $400 thats left, so you only accrue $100 of interest. If you had let the full $1,000 go past due, you would end up owing $250 in interest. See? Interest isn't so scary if you pay it off, is it?
2. Annual fees are everywhere.
Annual fees are everywhere, but if you do your research, you can probably find some pretty awesome credit cards without Annual fees. Sometimes, if you are a loyalty member with a certain airline, hotel chain, or restaurant brand, their company may offer a credit card exclusively for its members where you not only get the cardholder benefits, you also get extra member benefits for being a cardholder! Who doesn't like double the benefits? Sometimes, however, you don't get so lucky and the best cards out there have an annual fee of $50 or so. (Bummer) It's not the end of the world, it's only once per year, and depending how much you use your card, and the different rewards they offer, you will most likely get more than $50 worth of rewards out of it during each year of use. For example, I get one percent cash back with my Discover credit card. So if I spend $5,000 in a year, I'll get my $50 right back in cash. Generally, rewards credit cards outweigh their annual fees.
3. I don't need it, so why risk it?
That's actually a great question. Credit cards have such a negative connotation that some people avoid them for dear life. It doesn't have to be this way, you don't have to spend money you don't have, just to use a credit card. In fact, the number one way to pay off your balance before your due date is to never spend more than you actually have in your checking account. If I only have $300 in my checking account, it doesn't matter if I have a $1,000 credit line, I can only pay back $300, so I'm only going to spend $300. It does require quite a bit of self-control. Credit cards can be wonderful tools, too! Some credit cards offer discounts at certain merchants, restaurants, and stores if you use your credit card at that business. Every quarter, my Discover card sends out new offers for cash back. Sometimes we get two percent cash back for gas and groceries. I also have an American Airlines credit card and an Uber credit card, so I can earn miles, cashback, or Uber credits just for spending my own money! Plus, each one of the cards has their own unique benefits like $600 in cell phone protection just for paying my phone bill with my Uber credit card, and i get a free checked bag when flying American Airlines just for being a cardholder. Not to mention, quite a few businesses these days look into credit worthiness. You want a loan from the bank? Buying a new home? Financing a car? They all look at your credit score to determine if you are a trustworthy borrower. You may think having no credit score is good, but that's almost as bad as having a low score. Imagine a stranger asking you to borrow $50. If they have nobody testifying that they've ever paid them money back before, you might be hesitant to lend it to them. But if that same person had 5 other people around them that said "every time I lend him money, he pays me back on time", you're much more likely to lend him the $50. That's what banks look for. If you stay on top of your due dates, don't pay late, you can go through life with a phenomenal credit score so that when you actually do need it, you don't have to worry about it!
See? Credit cards aren't so bad. Definitely worth researching before you sign up for one, but don't have a heart attack when you see your first interest rate or get scared that you have a high credit line. Just because you have the money, doesn't mean you have to spend it all.