A credit card is a
plastic card that people use to pay for things without using cash. You
have probably seen your parents use credit cards to buy your school
clothes, gas for the car, or lots of other things. It looks easy and
convenient and you donít have to worry about having enough money with
you at the store. Letís be honest: they ARE convenient and they ARE
easy to use. The problem comes in how they are set up.
The first problem is that they are offered to just about
anyone. Donít think that when a credit card application is sent to you
that it means you would be able to afford to use it. These card
applications are sent to people who donít even have jobs! Think about
that for a minute. The credit card company wants to give a jobless
person a card so that they can buy things. How would this person
actually pay the money back? The answer is that credit card companies
expect you to buy things you canít afford to pay for, pay the money back
a little at a time, and then they charge you
interest for using their money.
The second problem is that when you get a credit card, you
agree to pay interest on any money you donít pay back each month. Some
card companies start you out with a 0% rate for six months. This means
that you donít have to pay any interest on money you donít pay off for
the first six months. After that, the interest rate might go up to 15,
16, 20, or even 25% of whatever you still owe. Sure you can buy that
flat screen T.V. that you have always wanted for your room. It is
ďonlyĒ $600.00 on sale. Letís say that you make $100.00 a week working
at a fast food restaurant. If you use all of your wages to pay the
credit card, there is no way that this bill will get paid off in one
month. Your first credit card bill shows the $600.00 amount which is
called the balance. The first bill you pay $400.00 which brings your
balance down to $200.00. The next bill is $220.00 which includes the
interest on the $200.00 you didnít pay back yet. If you donít pay all
of the $200.00 the next time, more interest will be added. The TV that
you got ďon saleĒ can cost you a whole lot more than you thought it
would. You shouldnít buy anything on a credit card that you canít repay
in one month.
The third problem is how easy it is to use the card when you
run out of money. You can even borrow cash on the card. What the
credit card companies donít bother to say is that you can borrow cash
but itís going to have a fee added for doing it. Then if you donít get
your payment in on time, more fees. Some cards even have an
annual fee just to have it. You
might not pay for the first year, but every year after that you get
charged $100.00 just to have the card even if you donít use it.
Another problem is that credit cards have limits that the
credit card company puts on them. This means that your first card might
have a limit of $500.00. You can have a
balance of no more than
$500.00. Since credit card companies charge interest on money you DONíT
pay back, they will keep raising your card limit when they see that you
are paying back your debts on time or paying the amount that you owe
each month. The longer it takes for you to pay back the money you
borrowed, the more money the credit card company gets from the interest
Since you are on this site because you need information and
good advice, we have to say that credit cards should be well thought out
before you ever get one. Have a reason for having one and a way to pay
back the balances you put on it. For example: Letís say you are going
far away from home to college. Your parents feel that you should have a
credit card in case you ever have to buy a ticket to get home in case of
emergency or to refill your food card (which could be an emergency,
too). The credit card will be in your name, but your parents would pay
for the emergency charges on it. This kind of card would be a good use
of a credit card. Another example: If you were younger than 18 years
old, had all of your money in a savings account and wanted to be able to
buy clothes when you wanted. You would pay the credit card by taking
money out of your savings account. This sounds like a very good idea
except that it would be too easy to get carried away. You might be in a
store and find the perfect prom dress. It is magnificent and on sale
from $500.00 down to $300.00. Wow! Thatís almost half off! You
realize that your savings account only has $200.00 in it but your
birthday is coming and your aunt always gives you $100.00. You think
that this is going to work out great until you find out that your aunt
gives you a lovely sweater instead.
We checked the average debt that people have when they
graduate from college. It is about $20,000 to $30,000. Now imagine
that you have
charged $15,000 on
your credit card. You start out your adult life in
debt. It is EASY to get into
debt and really HARD to get back out. Each person has something called
credit rating. A credit
rating is based on how much in debt you are and how you pay back the
debt. People who donít pay balances on credit cards, car loans, house
payments, etc. have low credit ratings. This might sound like itís no
big deal but credit ratings are used by people who might loan you money
for your first house or car. For this reason, we do NOT recommend
credit cards for anyone under 18 years of age. For anyone 18 years of
age and older, use credit cards responsibly. Here are some tips:
Never buy anything that you canít afford now but
think you can afford later.
Always pay off your balance each month. If you
can't, then you bought things you didn't have the
money to buy. You need to stop using the credit card
until it is totally paid off.
Avoid paying the
amount. Each bill will give a minimum amount
that you need to pay. If you pay that amount each
month, you are really only paying a part of your
balance and the interest you owe on the whole debt.
You don't actually pay much on what you owe. It
takes forever to pay off the debt and ends up
costing you an amazing amount of interest!
Avoid borrowing money on a credit card. They charge you extra money to
do that. It also means that you are spending more than you are have.
Avoid late payments. Each bill will have a Ďdue dateí when your money
needs to arrive at the company. Make sure you leave a few days for the
payment to get through the mail and to be subtracted from your
account. If you will be late, sometimes you can pay it online by going
to the companyís website. Always remember: Late = about $30.00 in
Keep track of what you buy or spend using the card. Itís easy to buy
something small and then forget you did. Lots of small things can add
up to one large credit card bill!
Think about a prepaid credit card. These cards look like regular credit
cards except that you buy them with a certain amount of money on them.
There are lots of these available by cash registers at stores. Some are
store cards that are only good at one store. Others are general credit
cards that can be used anywhere. These cost extra money to buy but are
sometimes reloadable. For example: You spend $100.00 to buy one and
the card itself costs $5.00. You would pay the cashier $105.00. Then
you could spend $100.00 at one time or spaced out over many shopping
trips. Letís say you bought something for $110.00 and used the card.
You would use the card and have to give the cashier $10.00 more. If it
is a reloadable card, you can add more money to it. There will be a
phone number on it to let you know how to add more money. The good
thing about cards like this is that you are spending money you have
right now. You are not spending money that you will be billed for
later. You canít overspend with the prepaid cards because the card
itself has a limit.
What is a charge card?
Charge cards are almost the same thing as credit cards.
You use them the same way as credit cards and they look the same. The
main difference between the two is that credit card companies charge
interest, but a charge card doesnít. The charge card
be paid in
full when the bill comes each month. With a credit card, you donít have
to pay the full bill all at once. You can make partial payments.
This page gives ideas
and tips for spending your money.