Tips for new Credit Card Holders

Credit cards are helpful financial tools if they are used correctly. They can also wreck havoc with your financial life if you don’t understand how they work, or get in over your head in debt. There are some things that new credit card holders should know. 

Many people get their first credit cards when they go to college or otherwise move out on their own. Only apply for a credit card if you don’t have one or two already, and make sure you are aware of the terms and interest rates. Many people sign up for a credit card or store card to receive a discount or free t-shirt.  Having too much available credit can affect your credit score. Also, each inquiry by credit card companies and other institutions puts a hit on your credit report; this can affect your credit score. 

If you charge items to your credit card and are not able to pay the balance off in full by your payment date, then you will be assessed a finance charge dependant on what your interest rate is. This finance charge is added to your balance plus any future charges to come up with what is due the next month. These finance charges can increase your balance rather quickly if you continue to hold debt past the billing cycle.

Most credit card statements have a minimum payment you can make. Many people think they are doing fine financially since they are able to make the minimum payments on their accounts. The minimum amount due is about 2 percent of the balance. If you pay only the minimum payment, then you are barely paying off the finance charges and making very little progress in paying off the principal. If you only pay the minimum payment and don’t make any more charges, then it will take you many years to pay off the original amount charged and a considerable amount of interest charges. 

The power of compound interest is helpful if you are saving money, but works against you when you owe money. If you owe money on a credit card and carry a balance, the finance charges are added to the balance each month, increasing the total owed each month until it is paid off in full. 

Credit cards do not offer free money like some people think, the balance needs to repaid at sometime. The longer it takes you to pay it off, the more it will cost you in interest charges. Some people charge more than they may be able to pay off to receive travel rewards or other rewards. But if you end up paying finance charges on it for more than a month or two, it may minus out the benefits of the rewards. 

If you find yourself having trouble controlling your spending with credit cards you may need to decide to stop using credit cards and start using only cash. There are many pros and cons to living debt free. If you are not able to live debt, but properly manage credit cards, then they can be helpful tools. However, new card owners need to learn about them so they do not end up in financial trouble.