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- My dad taught me a credit card is not an extension of your income — it's credit the issuer expects to be repaid.
- Once I received my first credit card, he advised me to make small, affordable purchases and to avoid carrying a balance whenever possible.
- He likewise cautioned me against making late payments and advised using my credit card wisely.
After graduating from college, starting my career, and purchasing my first home, I concluded it was the right moment to get my first credit card Once I possessed the card – along with its substantial credit limit – I imagined using it to complete decorating my new apartment, purchasing plane tickets, or paying for weekend breakfasts.
During an easygoing chat with my father, I brought up the fact that I had acquired a credit card. He didn’t seem too pleased about it. “A credit card? It’s the fastest way into debt! Make sure you use your credit card wisely,” he cautioned me.
The amount of credit card debt hit a record peak. over $1 trillion According to a report from the New York Federal Reserve, his statement holds true: Americans currently bear the greatest amount of credit card debt in history and are also facing substantial interest charge rates as a result.
Following my discussion with my father about using a credit card wisely, these are three tips I've continued to follow up until now, two decades later:
1. Begin with small, achievable fees
Rather than instantly putting that $2,000 dining room table on your credit card, opt for more manageable expenses that you can clear swiftly without sinking yourself deeper into debt. Using a credit card for something unaffordable leaves you with lingering balances that accumulate over time because of accruing interest.
Recognize that a credit card does not increase your earnings. Instead, it provides borrowed funds from the credit card company that they anticipate will be repaid.
When purchasing my new couch, rather than using a credit card and paying for it over several months, I waited until it was discounted (40 percent off during Black Friday) and then bought it with cash.
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2. Settle the full amount each month
The best approach for using a credit card is to clear your balance each month to avoid accumulating debt. Given that many credit cards have interest rates in the double-digits, maintaining a monthly balance can lead to significant additional expenses.
Additionally, whenever you settle the full credit card balance each month, your credit utilization ratio stays low, which has a positive impact on your credit. If your utilization is over 30% it can have a negative impact on your credit score .
3. Never pay late
Once those credit card bills start coming in every month, there's one thing you must do: pay at least The smallest payment required by the deadline. My father takes his credit seriously, and so do I.
If you fail to make a timely payment, you might incur both a late fee and additional interest charges on what remains owed. Additionally, such delays can negatively impact your credit score.
Once you establish your online account, you have the option to configure complimentary text or email reminders that will alert you several days prior to your billing deadline. Alternatively, if you're confident with managing your expenses, go a step ahead by enrolling in automatic payments to ensure you never miss a due date.
Have you ever had trouble paying your credit card bills leading to delinquency or default? If so, share your experiences and stories about credit score challenges and successes with this journalist at jstreaks@DIWIDA.
The initial publication of this article took place in November 2023.
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