Using Your First Credit Card
Credit card beginners As silly as it might sound, getting your first credit card is a kind of financial rite of passage.
For most of us it will be the first entry into the wonderful, dazzling and sometimes daunting world of credit.
As a matter of fact, credit is a major part of our society.
Mortgages, Car loans, Cash advances and Personal loans are all common types of Credit, as is (of course) the card that bears its namesake.
There is an important difference, however, between a home loan and a credit card.
Whilst the former is using credit at the lowest possible interest rate to secure an asset, the latter is usually used to purchase things that will decrease in value rapidly over time (like electronics) or consumables (like food and petrol) at relatively high interest rates.
A credit card lets you use credit for almost anything at any time, and whilst this is very convenient it can also be very destructive if you are not financially disciplined.
Even the strongest willed of us may be prone to an occasional impulse buy and it's frighteningly easy to forget that every dollar you spend now has to be repaid at some later date, on top of all the interest and fees you have accrued.
The following are some basic guidelines on how to stay on top of your plastic friend: * Stick to a budget: If you plan to use a credit card, you have to learn to budget.
This does NOT mean having a rough idea of your weekly costs, it means drawing up a full list of your fixed and variable income and expenses.
Don't worry, it's not as scary as it sounds! For a step by step guide on how to plan and stick to a budget, keep reading.
* Be Self-disciplined: The convenience a credit card bestows can be a double-edged sword.
Just because you can buy that new Ipod on credit doesn't mean you necessarily should! Likewise, before handing over your card for something always ask yourself: Can I really afford this? * Think about the future: Every dollar spent today has to be repaid at some later date.
Don't forget to consider interest and fees, not to mention the sacrifices you will eventually have to make to repay the debt.
* Remember the consequences: Every time you buy something on credit you are using other people's money.
They aren't letting you do this out of the goodness of their heart - they expect you to repay it promptly or pay heavily for the privilege.
* Keep a careful watch over your statements: A credit card statement is an invoice sent to you (usually on a monthly basis) that lists your recent purchases and the overall amount you currently owe.
* Keep receipts: It's extremely good practice to keep 'hard' copies of all your purchases, not only for tax purposes but also to check against your statements.
Put all your receipts in a folder and keep it in a safe place.
* Pay your bills on time: As long as you pay off your debts in full every month you will not pay any interest on the purchases you make.
This is the optimal way to use a credit card.
Paying off only the minimum each month is the best way to get into trouble.
* Mark down important dates: If you make a big purchase on your credit card, take note of when your interest free period expires - usually between 30 and 55 days of the purchase date.
Summary: Never forget that you are using other people's money.
Failure to repay your credit card debts will make obtaining other types of credit in the future very difficult if not impossible.
Stay disciplined, keep track of your expenses as best as you can and always pay your bills off on time if you are able.
For most of us it will be the first entry into the wonderful, dazzling and sometimes daunting world of credit.
As a matter of fact, credit is a major part of our society.
Mortgages, Car loans, Cash advances and Personal loans are all common types of Credit, as is (of course) the card that bears its namesake.
There is an important difference, however, between a home loan and a credit card.
Whilst the former is using credit at the lowest possible interest rate to secure an asset, the latter is usually used to purchase things that will decrease in value rapidly over time (like electronics) or consumables (like food and petrol) at relatively high interest rates.
A credit card lets you use credit for almost anything at any time, and whilst this is very convenient it can also be very destructive if you are not financially disciplined.
Even the strongest willed of us may be prone to an occasional impulse buy and it's frighteningly easy to forget that every dollar you spend now has to be repaid at some later date, on top of all the interest and fees you have accrued.
The following are some basic guidelines on how to stay on top of your plastic friend: * Stick to a budget: If you plan to use a credit card, you have to learn to budget.
This does NOT mean having a rough idea of your weekly costs, it means drawing up a full list of your fixed and variable income and expenses.
Don't worry, it's not as scary as it sounds! For a step by step guide on how to plan and stick to a budget, keep reading.
* Be Self-disciplined: The convenience a credit card bestows can be a double-edged sword.
Just because you can buy that new Ipod on credit doesn't mean you necessarily should! Likewise, before handing over your card for something always ask yourself: Can I really afford this? * Think about the future: Every dollar spent today has to be repaid at some later date.
Don't forget to consider interest and fees, not to mention the sacrifices you will eventually have to make to repay the debt.
* Remember the consequences: Every time you buy something on credit you are using other people's money.
They aren't letting you do this out of the goodness of their heart - they expect you to repay it promptly or pay heavily for the privilege.
* Keep a careful watch over your statements: A credit card statement is an invoice sent to you (usually on a monthly basis) that lists your recent purchases and the overall amount you currently owe.
* Keep receipts: It's extremely good practice to keep 'hard' copies of all your purchases, not only for tax purposes but also to check against your statements.
Put all your receipts in a folder and keep it in a safe place.
* Pay your bills on time: As long as you pay off your debts in full every month you will not pay any interest on the purchases you make.
This is the optimal way to use a credit card.
Paying off only the minimum each month is the best way to get into trouble.
* Mark down important dates: If you make a big purchase on your credit card, take note of when your interest free period expires - usually between 30 and 55 days of the purchase date.
Summary: Never forget that you are using other people's money.
Failure to repay your credit card debts will make obtaining other types of credit in the future very difficult if not impossible.
Stay disciplined, keep track of your expenses as best as you can and always pay your bills off on time if you are able.
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