Tuesday, June 19, 2012, AM | 1 Comment
It looks as if we are bombarded with debt from all directions everyday of our lives. Debt comes directly from credit and in credit we trust. There seems to be no escape from credit. We need it every step of the way. Let’s face it. This is the 21st century. We need the damn credit no matter how much some folks may hate it.
Many folks use credit to their best advantage. Others seem to use it to ruin their lives financially.
Credit is good IF…
Credit starts out as good. We all know that but may not always realize it. It’s up to our behavior how best to use it to our benefit.
If we don’t use credit carefully, the good of it can easily turn into bad and in many cases it has turned into the worst ugly that any one can imagine.
One of the best ways to not get in debt is to stop asking lending institutions for credit. If you do need credit of any kind, you better damn make sure you are able to pay it off in due time.
That’s one of the best ways to use credit and not get into debt.
But that’s easier said than done. Data for consumers debt suggest otherwise. American people are way up to their neck in debt though in some case they have succeeded in reducing their debt.
To be fair, some debt may be good if you are on schedule to eventually pay it off, the biggest example of which is mortgage debt.
Major sources of consumer debt…
There are three major sources of consumers’ debt – the figures in dollar might be a slightly off:
- Mortgages of all kinds, the debt for which stands at $13.5 trillion.
- Student loans, a whopping $904 billion in the first quarter of 2012, a $30 billion increase from the previous quarter, according to New York Fed Quarterly Report.
- Debt from our good old credit card stands at $679 billion.
As you can see, student loan has overtaken credit card debt. There was a time in the not-so-far distant past you could argue that money spent on getting quality education would later give you monetary rewards in your employment days.
Is the above statement correct these days? Maybe, maybe not.
Students borrow money to pay for their tuition, books and boarding – their temporary place of residence for two or four years. That means students are already in debt up to their neck when they get out of college.
Therefore, when students get their first credit card, they must be prepared to understand how it behaves so they can use it more efficiently and to their benefit.
It might not be easy for some but can be easier for the majority of students.
Credit card hype and hoopla…
Some experts are in favor of student credit cards which are said to be designed purely for students. Nothing can be far from the truth.
It’s the biggest hype and hoopla that a credit card is designed to help consumers whether they are students or not.
Others might suggest secured credit cards which are good initially to build your credit history. Banks generally require a deposit of certain amount.
Remember no credit card has ever been issued to wholly solely help the consumers. The issuers main purpose is how to fill up their bellies with profit coming from your pocket, in addition to what they charge merchants.
It’s the consumers responsibility how best to use their credit cards for their own benefit. You can play the issuers game and win it too if you are careful paying the bill on time and in full every month.
Understand basic characteristics of your first credit card…
Whatever your motive is to get your first credit card, it’s best to have basic understanding of what you are getting yourself into.
These days there are many issues and concerns you should be aware of:
Recently I posted an article about understanding and managing money. One of the items is APR & APY.
Read it again, especially the part of “How industry advertises APR and APY.”
Understand and realize how the credit issuers have held you tight from your neck.
Fees of all kinds…
Rather than repeating myself, I would let you read my article on Differences Between Secured And Prepaid Credit Cards.
I discuss interest charges and the whole enchilada of fees. If you choose to have a credit card with no annual fee, read the fine prints how its interest charges, late fees and finance charges are structured.
With no annual fee, these charges may be higher than for cards that have annual fee. Your best bet is to charge to your credit only if you can pay it in full and on time when you receive your bill.
Credit cards with rewards…
Never ever use credit cards purely for the rewards. You would get into debt faster than the speeding bullet.
When I use my credit card, I don’t use it for the benefit of getting rewards. That way I avoid buying things that I don’t need.
Rewards are good if you use the card normally to buy things you need.
Use your first credit card to build credit history…
Chance are you have no credit history if you are obtaining your first credit card. This is a good opportunity for you to use it when you need to buy and not when you wish to buy.
Pay your bills on time so that you avoid late fees and finance charges.
Pay it in full every month and you will avoid interest charges as well.
This may be a good time to start building not only your credit history but your spending habits as well which will help you for the rest of your life.
Have no more than two credit cards…
Avoid the temptations to get more than two cards especially store-brand cards which might initially get you a discount but you will pay dearly for as long as you keep buying with it.
Applying for a credit card whether it’s your first or not will get your credit score lower by as much as 75 points.
Learn about your credit report…
The only Government-authorized entity to ask for credit report is Annual Credit Report dot Com. You can get a free report once a year.
In case you are denied credit card…
I want to say that may turn out to be for the better if you are denied your first credit card. But in a modern economy as the U.S., it’s almost impossible to close your eyes from reality of credit.
It’s just that somehow you have to establish good credit. It may be a small loan from your local bank in which case you must make sure to abide by the loan conditions and return it in full within the mutually agreed upon period.
For this and a thousand other reasons, it’s best to ask for your credit report from the only government-authorized entity known as Annual Credit Report dot Com as I mentioned above.
Payment history is the most important…
If you look at how FICO credit score works, the highest score (35%) is given to your payment history.
So never be late in your payment. Keep the ratio between amount owed (30% on the chart) and your total credit as low as possible in a month.
Having said all that…
Never use common sense. Using it has destroyed many folks financially.
Using common sense especially that of Americans will lead your finances to nothing other than bankruptcy like it has millions of folks.
American common sense suggests to follow Mr. & Mrs. Jones. Stop doing that. Your own judgement of your own finances is better than following others.
It’s best to use your sense which may be much better than everyone else so-called common sense.
You are intelligent human being. Don’t give in to your temptations of spending recklessly.
In a Nutshell
You may be able to get your first credit card with no difficulty at all. The hardest part is how best to use it to your benefit and your financial livelihood and not just to keep filling the card issuer already swollen bellies.