Having a credit card is a big responsibility, and truth be told, it’s not wise for everyone to have one. Some people are more disciplined than others and would be committed to paying off a credit card balance each month to prevent receiving penalties and fees. Others people…not so much.
So, how do you know if YOU are ready for a credit card? This is something you can figure out for yourself by answering a few questions.
Applying for your first credit card? Many credit card companies are happy to issue high school and college age students plastic, but before you sign up, it is essential that you know the good, the bad and the ugly of credit cards.
The quick answer is typically no, you can’t go into debt with a debit card.
But let me explain why. If you haven’t had a chance to read it yet, check out our recent post, “What’s the difference between credit and debit?“ The nutshell is that when you pay with a debit card, you are using money that you have. But when you make a purchase with a credit card, you are spending money you don’t have and are in fact borrowing.
Anytime you make a purchase, you have a lot of options for how to pay for that item. Most retailers will accept any combination of the following: cash, checks, debit cards, or credit cards. While everyone does it differently, here is what I do and what works for me with each form of payment.
Your credit score is really figured on one key ingredient: debt.
If you have debt (not too much and not too little for your situation) and are consistent with your payments, you’ll have a good credit score.
So once you pay off everything (and hopefully you’re not planning on acquiring any new debt), you are missing that key ingredient for a good credit score: debt. Initially, you won’t really see any changes in your credit score for paying off your last debt. But over time, your credit score will start to go down if you don’t add any new debt.
Yesterday, we talked about what happens during the first few months when you haven’t paid your credit card bills (Read Part 1 here). Today, we’ll pick up with what happens after 6 months.
Before we can really address how to get out of this mess, it’s important for you to take a step back and determine what caused all this in the first place. You have to address the problem and learn from it, so it never happens again.
If you get into a situation where you have credit card debt and can’t make the monthly payment, the first thing you should do is cut up the credit card and close the account. Regardless of if it is a temporary life circumstance that made it difficult to pay or whatever the situation may be, cut up the card. You don’t need it right now.
Let’s walk through the stages of what happens if you go into credit card debt and can’t pay…
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If you have a credit card, you can use it for just about anything you want to. Once you get a credit card, they give you a credit limit which is the maximum amount of money you’re able to charge to that card, but a credit card company really doesn’t care what you spend it on.
Thus, part of the danger of a credit card.
Having a credit card simply as a safety net in your back pocket sounds like a decent idea. However, I am not a big fan of the concept. Sure, emergencies happen and we need to be prepared, but there are far better ways to be prepared than having a credit card. Let me give you a few reasons why…