Things I Wish I Learned in School: Credit Cards
Are Credit Cards worth it?
Do you ever look back at your school days and wonder what was the point of learning a lot of the topics that were taught? All the things you learned that are not useful in everyday life? Things that are useless, or maybe useful for short periods of time. So where are people expected to learn the basics of everyday life? Things like how to do your taxes, how to invest, how to buy a home, and how to use a credit card. Things that are important to know, but not taught in school.
I am sure I'm not alone in feeling this way. Things can be learned by doing research or asking people, but it takes time and effort to do so. My goal with each of these articles is to provide you with a solid base of understanding for topics that are imperative for success throughout life. Things that are not taught in school. Things I wish I learned in school.
My focus for this article will be on credit cards and more specifically management of credit. To this day, many people believe that credit cards are the worst thing that a person can use. In fact, some people believe so strongly in this idea that they will never get a credit card. This is totally understandable as having a credit card brings with it the responsibility of learning how to properly manage your money and spending habits. Things such as minimum payments and annual percentage rates are complicated and take time to understand.
So for those of you looking to open up your first credit account there are several factors you should take into consideration. The first thing to consider is: Do I need a credit card? If the answer to this question is yes, and you plan on carrying a balance (meaning spending more money than you make) then this may not be the best option for you. Carrying over a balance each and every month can become very costly due to the interest rates attached to the card. This is due to the APR (annual percentage rate) on the credit card. APR refers to the interest that is applied to your bills each month. This can get pretty pricey if not paid on time.
To give an example, if you owe $1,000 on a credit card that has a 24% interest rate and you only make the minimum payment of $25 per month, it will take you 82 months to pay if off. At the end of this period you will end up spending over $1,000 in interest! So a single $1,000 purchase can end up costing you over $2,000! This is why it is so important to pay off your expenses each and every month! So do not fear because as along as you pay off your expenses on time each month there are no additional charges!
Also, on the positive side, many credit cards now offer rewards for using their cards. It's not uncommon to receive 1-5% back on select purchases that over time can add up to hundred of dollars to be used to buy gifts. So think about this, if you pay off your credit card on time each month, they are essentially giving you free money! I personally use a credit card for all purchases and have autopay set up at the end of every month so I can take advantage of this.
In summary, credit cards can seem scary but when handled correctly the benefits greatly outweigh its downfalls. Always be sure to only purchase what you can afford to pay off. NEVER spend over what you have available in cash so you can ensure to cover your bill each and every month. As long as you follow this simple rule, credit cards can be a great benefit, not something that keeps you up at night.