The best way to use a credit card is only for emergencies. A blown transmission is a good example. Not everyone has $2,000 to fix it when it goes. But that transmission is an integral part of your car and your car is an integral part of your economic development; i.e. it gets you to class and to work on time. So fixing that transmission quickly and being able to pay it off over time may be very important for many students.
This brings me to my second point beyond emergencies, use your card to only purchase assets; not liabilities. The transmission is an asset to your car. Liabilities? Vacations are a liability. When you pay for a vacation on a card, you are only deferring the costs. After the vacation, you only have memories. Pizzas, movies, concerts, fancy dinners, fashionable splashy clothes and such are drags on our monthly budgets if we decide to place them on our card. These things have virtually no value after we pay for them and have the experience of the movie etc. You want to go to a concert or a movie? Save your money for it. Make it a special part of your budget. Paying for it with saved money is much more satisfying.
Use the card to purchase assets. Your school books are an asset to your education. If you use your card to buy household items, use it for furniture like a couch. Then you are buying an asset for your house. Then, when you sit on that couch and write out your checks for your bills, you are sitting on your asset. J (A little banker humor.) But, think about it, if you suddenly fall on hard times, you can sell that couch and pay down your card. You can’t sell the memory of a concert or the taste of a meal from three months ago.
Also, whenever one uses their credit card, consider how you will pay it off before you charge it!
Here are some other ideas fresh from my blog:
- When establishing your first credit, consider using a secured credit card; a card where you have to make a deposit in a savings account in order to establish and maintain the card. The money on deposit is your collateral for the credit. You now have an additional incentive besides maintaining our credit to be on time with your payments; your own money is at stake. Meriwest Credit Union offers this type of Secured Visa Card. Info on our Secured Visa Card is here.
- Another secured type of credit option is the credit union share account loan. Most credit unions have this. You make a deposit to an account and then take a loan out against the funds in the account. As you pay it back on time, your CU lets the credit bureau know and it helps get you get established in managing credit. Secured Share Account Loan info is available here.
- When you get your first credit card, do not celebrate. There are those who like to go out and get a quick pizza or a movie when their new credit card arrives. A new credit card is not a good excuse to go out to spend and celebrate.
- Avoid gas cards issued by Shell, Chevron, and other oil companies. Those who are new to credit are often unaware that gas purchases on oil company cards have to be repaid monthly. Only repairs and major purchases, (tires, transmissions, etc.) can be paid over time.
- Check your credit report annually at AnnualCreditReport.com to verify your current outstanding credit and prevent identity theft. Do you see a card on your report you didn’t order or apply for? If you are reviewing your report annually, you can take action fast and stop identity theft.
- It seems simplistic, have a budget and plan your spending. A good budget can keep you from using your credit cards to supplement your monthly budget and help you pay off the debt you already have.
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Our next Free Financial Education Workshop will take place Dec. 11th at our Main Office.
Credit Myths and Repair
6:30pm to 7:30pm
5615 Chesbro Ave
San Jose CA 95123
Please RSVP with Greg Meyer at email@example.com or 408-365-6328