Have you ever wondered whether having a credit card is good or bad for you? For most newbies in their first jobs, getting a credit card is a sign that they are finally independent! It is a cause for celebration and may cause many to eagerly take the irresponsible first swipe.
Being approved for one might seem like an achievement. It’s like announcement to the world that you can now pay for your own bills. But when you see your first bill or several unpaid bills afterwards; your feelings might change and you might feel less independent and more helpless.
For those already mired in debt, it becomes the object of many negative feelings. They might event want to just get rid of it. The usual advise for newbies is to not acquire one in the first place because it’s a debt trap.
The reality is, you can have a credit card and not be trapped in debt. Many have learned this the hard way and have now learned how to handle this financial tool more responsibly. Here are some reasons and lessons on why and how it can be bad or good for you.
The Bad: How NOT to Use Your Credit Card
Let’s try to get the negative stuff out of the way first. Many of the negative feedback that has accumulated around credit cards is mostly due to a lack of understanding. Not knowing how credit cards work can lead to irresponsible swiping.
To avoid getting into the debt trap, educate yourself. Make sure to read the fine print and ask questions about your credit card before your first swipe. Then, make sure to not do the following:
- Charge items that you can’t pay off immediately on your next salary schedule.
- Exceed your credit card limit. Please don’t do this especially on your first swipe.
- Paying only minimum payments.
- Making late payments.
- Owning too many credit cards. If you haven’t practiced managing just one, don’t assume you can manage more than one.
- Lending it to somebody else.
Sadly, the last one is one of the most foolish things you can do when you get your credit card. Peer pressure is a strong influence and most people just can’t say no to a friend in need. Learn to say NO or you might get yourself trapped in debt that is not even your own. You might even lose a friend in the aftermath.
If you are already having problems; there are ways on how to get out of your credit card debt.
The Good: How to Use Your Credit Card
Now for the good news. Being a responsible credit card user means enjoying its many benefits. You don’t have to be burdened with enormous debt as long as you keep these things in mind:
- Pay for your swiped items as soon as you get your salary.
- Do not exceed your limit. Try not exceeding 70% of your limit. This gives you some leeway for unaccounted expenses that you need it for.
- Pay more than the minimum payment. This will ensure that you lessen the principal amount and not just the interest and charges. If possible, pay your card balance in full every month.
- Pay on or before the due date to avoid additional late fees and charges.
- Keep yourself to one card and learn how to manage it well.
- If a friend needs your credit card, ask them to pay you in cash first, then swipe. Make sure to transfer the cash payment immediately as well.
You should only use your credit card for some else because they need it to complete a transaction. This means that they should already have the cash to pay for the transaction in the first place. It should only be a “way” to facilitate the payment and not the actual payment. If it were to be the actual payment, then they should ask to borrow cash from you instead.
Remember that using your card as the actual payment includes interest fees and charges if not paid on time. So if your friend insists that they will pay for the payment using your credit card; make sure they agree to shoulder additional charges if they fail to pay on the due date.
Why Should You Have a Credit Card?
A credit card can provide you with several benefits if you learn how to use it responsibly. Here are some advantages to having one:
Credit cards allows you to make purchases that may not be available another time. For example, if you don’t have cash yet, you can use your card to pay for the item. You can then pay your credit card at a later date.
Some online services require credit card payments such as some airline companies and other online shops. It is handy so you can pay for the transaction. You can purchase the item you want which is not available or inconvenient to get hold of offline.
This also usually occurs online. Some companies require a credit card for you to make a reservation. They do this even if they don’t actually use it to receive the payment from. It just serves as a guarantee or insurance of sorts. It demonstrates to them that you are indeed capable of paying for their services or products.
This is one of the most basic but also the most taken-for-granted benefit of a credit card. Most credit cards alert you to online scammers on their black list. If you use it to make a purchase from a blacklisted seller; your credit card company may decide to cancel your transaction automatically. They may call you to warn you about the seller so you can choose to cancel the transaction immediately.
If you have issues with a transaction, or the goods you received are faulty; you can request for a refund from your credit card provider.
Get Something Back
Good credit card payers and loyal users are often rewarded with cash rebates or freebies. These can include free items when shopping like free tickets to concerts, exclusive invites to hotel buffets, special events, rebates and many more.
Of course, all these benefits can only be enjoyed if you are a responsible user. You should have a lot of time to practice as it takes some time to accumulate points.
So is credit card, good or bad? The answer depends on how responsible you are at using this financial tool. If you are fairly good at managing your card, then you are on your way to financial wellness.
Updated. First published on Pinoy Smart Living on 2019.01.22.