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How to Use a Credit Card


Thinking about getting a credit card? Taking the plastic plunge can seem scary; there's no shortage of horror stories about sky-high interest rates, penalty fees, and insurmountable balances. But there's also no denying that it's often easier to be cashless, and if you're thinking about jumping on the credit bandwagon, you can make sure you prepare yourself to be financially responsible about it.

First of all, credit card use is a convenience. Even though it's rectangular and plastic, think of it as just a different way of spending your cash. So before you even think of applying for a credit card, learn the hows and whys of saving money. Start off by understanding and practicing different ways of saving money—open a savings account, purchase low-risk investments like bonds and CDs, or collect change in a jar, etc.

Once you've gotten around to building your savings, start using a debit card. This way, you'll develop a habit of only spending what you have, which is essentially what you should be doing when you use your credit card. Once you can trust that you'll be financially responsible (being disciplined with savings and paying bills on time), apply for a credit card with a low credit limit, such as $500. That way, even if you do get caught up in the allure of plastic, you limit the potential damage!

That being said, it's best not to use the "credit" part of your credit card. People often mistake their credit limit—the amount they're "allowed" to spend on a credit card—as free money or advanced cash. On the contrary, your credit limit is not your savings. Your savings are your savings. Credit cards are a loan, one that is best paid off every month, so every time you use it you should think of that amount as coming out of your bank account.

Of course there's no reason to fear credit cards; nevertheless, it is important to understand that credit cards are never free. They come with annual fees, monthly interest rates, and penalty charges. But they can also come with awesome perks like membership rewards points, elite travel access, and even cash back. Most importantly, opening a line of credit builds your credit history, which is basically a record of how responsibly you manage your debt (i.e. money you owe). Creditors and lenders use your credit score to decide whether or not they'll give you a credit card or extend a loan.

As long as you manage them well, credit cards are worth having. But if you don’t pay them off completely or if you miss a payment, you’ll end up in the regretable position of owing someone a lot of money. Just remember: healthy spending begins with healthy saving!