Credit Card Debt
Believe it or not, a credit card is a good thing. It builds credit. That is, as long as you don't use it to go out with your friends or buy stuff you don't need. If you're still not sure it's such a good idea, take a look at this list and then decide:
| Pros: |
- You can establish good credit (so you can get things like a car).
- It could come in handy if you have an emergency.
- Some credit cards will insure whatever you buy with them.
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| Cons: |
- You could max it out and get in way over your head.
- You could be unable to pay your bill and mess up your credit (for SEVEN years)!
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If you decide to get a credit card there are two important things to know before you chose a credit card company:
1. INTEREST
It's essentially how much you're charged by the credit card company to borrow money from them. The credit card company looks at how much you've charged to your card and then multiplies that by the interest rate. The secret of credit card interest is to find the card with the lowest possible fixed rate.
What does that mean?
Interest rates go up and down depending on many different factors. If you have a variable interest rate, your credit card company could offer you a 9% rate (cool!) when you apply, then change it to 18% (uncool) in two months. If you have a fixed rate, they can't.
Don't fall for the whole "introductory rate" scam. This means that you'll have a nice, safe rate for the first year, and then the company will jack up the rate to some ridiculous number. A reasonable interest rate is anywhere between 5 and 11%.
Also, just a heads up, some credit card companies may list your "monthly interest" as a "finance charge" on your monthly bill.
2. BALANCE
It's the amount of money that you've charged on your credit card plus any applicable finance charges (interest). The best plan is to only charge what you can afford to pay in full that month. If an unexpected expense arises that you can't pay the balance in full, you need to pay the maximum amount you can afford without taking to much money away from your other expenses.
Next: Using Credit Wisely
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