It is always an exciting moment when you apply for your first credit card. It is fun when you can buy anything at any time, regardless of whether you have the money or not. Credit cards help you purchase things you couldn’t afford if you were paying with cash.
Depending on your financial discipline, however, credit cards can be a double edged sword. They can be fun, but they can also lead you into a sea of debt. These debts tend to carry a high interest rate, which sinks you even deeper into debt.
Therefore, to avoid debts, there are some tips you need to know. Read on to learn more about how you can avoid debt with your first credit card.
Pick Your Credit Card Carefully
Different cards serve different purposes. For instance, there are balance transfer credit cards, rewards credit cards, student credit cards, charge cards, and secured credit cards, etc.
Depending on why you need your credit card, you can choose a card that best suits your needs. For instance, since it’s the first time you are getting a card, you’ll want to consider one with low interest rates.
If you are a student, you need a student credit card because it offers rewards, low interest rates, and other benefits.
Charge What You Can Afford
If you want to steer clear of debt, charge only the things that you can afford. This advice applies to any financial goals you may have, like investing, saving, etc.
Buying things that you can’t afford means living beyond your means, which is a recipe for disaster. If you are a person that has issues controlling yourself when it comes to spending, then you might as well wait to get a credit card lest you will be in debt all the time.
Pay Bills on Time and in Full Every Month
When you live within your means by paying only what you can afford, you should be able to pay your balance without any issues. For most cards, when you fail to pay your bills on time and in full, your interest rate will be hiked.
Some cards will also charge you for late payments, which can be as high as 27%. Therefore, when getting a credit card, look out for this feature and avoid it as it might land you in debt.
When you fail to pay on time, some cards will charge you an annual percentage rate of between 25% and 30%. Remember also, failing to pay bills on time will shrink your credit score, which will affect your financial records in the future when you need to borrow money.
Understand the Dangers of Debt
When you have a credit card, the first thing you should keep away from is debt. When you get debt the first time, however small, it can build up so fast that the figure you look at is unbelievable.
For example, owing $1,000 on your card and 20% interest, your debt will be $12,000 and after a year, $14,400 and more. The financial company is earning 20% annual returns on their investment-loan they gave you.
Make More than Minimum Payments
Endeavor to pay more than the minimum payments because it favors the lender, not you. Anytime you end up with a significant balance on your credit card, ensure you pay it off fully.
When you pay just the minimum payment, the remaining balance will also be charged and if it goes on for some time, it can lead to a significant amount.
Check Your Statements Well
Every month, your card issuer will send you statements detailing each bill you made. People have a tendency of looking at the balance after which they trash the statement, but that’s wrong.
Take some time to thoroughly review all the charges. Some cards have zero liability feature for fraudulent charges.
Conclusion
Credit cards come in handy because they help you afford things as you await your salary. However, you have to avoid debt as much as possible. Pick the right card in regards to your needs, pay more than minimum payment, and pay your balance fully on time.
