Ahh~ credit cards. A beautiful tool if used well but otherwise a plastic that would drain your soul.

So I got asked a lot about credit cards. And here are my thoughts about credit cards.

  1. Make a credit card because you need to build credit. Eventually, we will all graduate and move on. Our consumption is likely to increase with marriage and children. We may have to buy a new car or a house. In such case, a good credit score, will ensure that the interest rate is favorable. So do get a credit card to build your credit.
  2. Always pay your credit card in full. Once you started accruing credit card depth, you will see the full force of compounding, against you! Don’t let it happen. If you miss a payment, your interest rate will jump from 18% to 25% in no time. So always pay off your credit card. Also, if desperate, ask money from your parents or get a loan. Credit card interest rates are really high. Recently, nothing really has a return of double digits except credit card…so that is how high the rate is.
  3. Stay away from zero APR deals. Zero annual interest rate for some time its great. Basically, free credit! But it’s a trap. I have only seen one person who used zero APR well. Others went to spend more than they can afford. And had to start paying lot of interest as soon as the zero APR ended. Unless you are super disciplined do not use the zero APR offer.
  4. If you can’t curb your spending  don’t get a credit card. This seems obvious but it is sad that many don’t follow through. I have seen many people blow a hole in their pocket with overspending and later trying to pay the credit card bill. If you do not have the discipline then don’t get a credit card. Just use a debit card.
  5. Always check your statement. There is so much fraud these days. Although alert systems have become more sophisticated. Always check your statement, you will be surprised to find small amounts that you never spent! So make a habit of checking your statement.

On the next post, I will talk about my favorite credit cards and how I manage my cards.