It's a Money Thing®
Using Your Credit Card
News outlets and credit card companies are quick to label millennials as being credit card-shy. According to a recent survey, millennials apparently fear their credit card debt more than climate change, the threat of war and even death. It may sound like an overreaction, but the underlying trend is substantial: millennials are carrying fewer cards and have lower balances, compared to the previous generation of young adults.
Cause for concern:
Hesitation around opening and using a credit card is completely justifiable—it invites the possibility of overspending, missing payments, racking up fees, paying high interest rates and dealing with the resulting financial stress. Despite millennials carrying fewer cards, credit card debt is on the rise, with Americans carrying an average balance of $6,375 in 2017. Credit cards can be seen as a gateway to spiraling debt—and for some, that’s enough to justify reaching for a debit card or for cash instead.
Being debt-conscious isn’t inherently bad—in fact, being able to see past the convenience of credit cards to their potential pitfalls is a responsible perspective to have. Credit card transactions are essentially mini-loans that can lead to serious debt when used carelessly, but avoiding them altogether is also problematic—and not just for the credit card companies who issue them. An aversion to credit cards can negatively impact future financial and lifestyle decisions.
Consequences of being credit card-shy:
Credit card use plays a huge role in contributing to your credit history, which in turn is an important part of your financial footprint. Credit scores are a key component in many of the major purchases you will make in your lifetime, such as vehicles or homes. A good credit score may also affect your ability to secure a loan for a small business or a future entrepreneurial venture. Some employers and landlords perform credit checks as part of their application process. Your credit history can therefore have an impact on your lifestyle, on your livelihood and even on where you live.
Avoiding credit cards won’t actively damage your credit rating, but it can hold you back from achieving the types of scores needed for the best interest rates on auto loans and mortgages. While it’s possible to build your credit
score with other borrowing products such as student loans or personal lines of credit, credit cards are the easiest way to boost your credit score because of their accessibility. When used responsibly, credit cards can build a positive credit
history with little or no cost to you.
Using credit responsibly, Tip #1:
To sidestep any and all credit card-related fears, follow this strategy: pay it in full and on time.
Paying your credit card bill in full means you’re not carrying a balance and therefore cannot be charged interest. Paying your bill on time protects you from being charged late fees and other penalties. Paying in full and on time also allows you worry-free enjoyment of the perks and rewards that your particular credit card may have.
To accomplish this, make sure you know when your billing cycle opens and closes, when your payment is due, and set up reminders or automatic payments to ensure your payment is made.
Using credit responsibly, Tip #2:
Treat your credit card as you would cash: use it to make regular purchases within your budget that you know you can afford. You don’t treat it as additional available income. You don’t use it to fill the gaps when your paycheck isn’t quite covering everything you want it to. You only use it to pay bills and make purchases that you can cover with money that you already have in your bank account.
These tips, along with a little bit of knowledge and self-discipline, is all it takes to successfully use your credit card. This approach allows you to fully enjoy the convenience and rewards of your credit card while contributing to a positive credit history that will serve you well when it comes time to make a large purchase. There’s no need to be shy when using your credit card responsibly.
