You’ve just graduated from college and secured your first apartment. You’re truly ready to begin the next chapter in your life. During college, your parents gave you a card to use only for emergencies and you abided by the rules. Your credit is good thanks to their help and now you have offers coming in the mail to apply for credit cards of your own. Before signing up, it’s important to weigh the pros and cons of having credit cards.
Purchasing Big Ticket Items
You’ve made a few large purchases in the past. You bought a gaming system, a television and recently men’s watches for your job interviews. However, those purchases were paid for with cash. Buying large items that you otherwise can’t afford on credit is never a wise move unless, of course, you have no other choice. For example, your car breaks down and it needs a new braking system and you don’t have the money. You need the car to work, so it’s critical to keep it running.
Many people get into serious financial times due to their misuse of credit cards. It’s important to remember that the extended credit isn’t free cash. Any purchases you make, you will receive a bill for the following month. So if you spend $200.00 you should have that money set aside to pay the bill. While credit card companies will allow you to break the amount down and pay it back in small monthly payments, it comes with accruing interest.
Enjoy the Benefits
If you use credit cards correctly, there are several benefits that you will enjoy. First, they will help improve your credit score, which in turn will increase your buying power. It will open the door to credit cards, lower interest fees, credit cards with perks, the ability to buy a home or a car. People who use them responsibly earn airline miles and enjoy free flights. Some credit cards offer other rewards, such as cashback for purchases made.
It can become very tempting to whip out your credit card to see a movie, dine out or buy tickets to the game. However, if you run up the card balance beyond your ability to repay it right away, you’ll have more to pay off. Once you don’t pay your bill in full, you’ll start to carry a balance and that means added interest. It’s never a good idea to become reliant on using credit cards. They will only serve you well if you have the money in the bank. For example, you’re going on vacation and your bonus will be there next week. However, you want to book the flight now due to the cost and availability. In this instance, it’s a smart move, you’ll have the money prior to the next bill cycle.
Getting Into Debt
If you often buy things on impulse, it may be a good idea to acquire only one card with a low available balance. If you have several with high credit limits you may end up buying things you can’t afford. Do this a few times and suddenly your credit cards are maxed and you’ll have large bills due each month. At this point, it will be difficult to pay them off in a month. If you’re not careful it’s only a matter of time before you make a late payment or miss a payment due to your inability to pay. Now your credit score is lower and working against you.
Credit cards offer convenience and flexibility. They can build your credit and open the door to many possibilities. However, if you don’t use them correctly, they will cause you stress, cause you to have bad credit and financial ruin.