In light of the current state of the economy many people struggling with credit card debt are placing the blame squarely on the shoulders of the credit card companies. The truth is regardless of the sometimes unscrupulous marketing tactics most credit card companies implement to keep card holders in debt, they cannot ruin your finances unless you fall for their traps and use your credit unwisely. When you are just starting your financial journey building your credit is an important step for establishing your credit worthiness. You do not have to go in debt to do this, conversely using credit cards wisely can be a great way to build a positive credit history.
Things To Consider Before Getting Your First Credit Card
Protect yourself before you apply for your first card by preparing in advance. Learn the basics of personal finance, talk to your parents and friends about their experience with credit cards and research all your options before committing yourself to a contract with a credit card company.
- Read the fine print before applying- If you are just starting out with little or no credit history you must be careful when reading the terms and conditions of your credit card agreement. Be on the lookout for credit cards that charge an annual fee, the fee in conjunction with a lower credit limit may result in having less available credit right from the start. Be cognizant of the fact that the advertised annual percentage rate may not apply to all applicants.
- Review your budget- Look at your current income and expenses to see how a credit card payment will affect your overall budget. To avoid falling into the minimum payment trap, you should have enough resources to pay your balance in full each month. This will help you avoid racking up high balances that can accumulate into a debt burden you cannot handle. In addition to helping you keep your spending in check, reviewing your budget will allow you to work a new payment into your spending plan before the statement appears in the mail. Remember that making just one late payment can raise your interest rates in addition to damaging your credit history.
- Debt to credit ratio- Your credit score is determined by a number of factors one of which is your debt to credit ratio. By keeping a low debt to credit ratio (the amount of debt you have in relation to your available credit) you will not only keep your debt from becoming unmanageable but also keep your credit score heading in the right direction. It is important to remember your available credit is not free money or an extension of your income. Just because you have the purchasing power to buy something does not mean you can afford to make the purchase.
When you are just starting out you have a once in a lifetime opportunity to get it right the first time. The decisions you make today will have a lasting effect on your financial goals. Make your credit card work for you instead of working to pay off your credit card.
This was a guest post from Trisha Wagner is a freelance writer for DestroyDebt.com.