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Credit cards, you may have learned to love or hate them but what are the facts? Can credit cards be used for good? Do all users go into debt? How will this all affect my credit score? Enter Empower Your Budget! In this blog we will give you the full breakdown on credit cards for anyone having questions. If you have more questions, ideas or suggest further blog posts comment below! With that let's get started!
What is a Credit Card?
In short, a credit card is a monthly loan. This means each month you have an amount limit each month to spend. Then you have to pay it back. There are three options for users, pay in full, pay minimum balance, skip payment. We will talk about payments in a bit but first we’ll talk about the benefits and downsides for card holders.
People love credit cards for many reasons, from the airline miles to cash back rewards there is a card reward to fit everyone's needs. The most obvious reason is the instant money. For a whole month users have an extra amount of money that can be spent. This cycle continues for as long as the card is in use. Credit cards are one of the best and easiest ways to build credit. Building credit allows you to save thousands when looking for longer term loans like auto or mortgage.
Credit cards offer many advantages for users but all downsides point to the extreme rates. The average rates linger around 18%. This is just the APR or annual percentage rate, when one does not pay they must pay the balance back plus the interest rate is at the APR limit. Along with this rate card also has costly fees. Some examples of this include annual fees (fees each year of using the card), late payment fees, over the limit fee, balance transfer fee. These are just examples not all cards have these fees and these are not limited as there are many more credit card companies that can charge.
Pay In Full
Now that we have laid out the pros and cons, what can be done? Let’s talk about those payment options listed above. To quickly refresh the three options include paying in full, the minimum amount, and skipping payments.
As one may assume Empower Your Budget advises paying in full. Simply put we believe you should not be spending more than you have. A credit card can be used for its rewards, and quick access to money but at the end of the day the full balance should be paid at the end of the month. Paying in full is so important as you can then still reap all the benefits of the credit card without the fees and rates tied along. One more time PAY IN FULL! This means that spending with a credit card should be like spending on a debit card. Always ask if you have the money or these payments, if not… you should not be buying it. While it may not be fun at the moment, going down a path of credit card debt is very complicated and many wish to avoid it. It is from these people that have been caught up in these extreme payments that cause the ‘horror of credit cards.’
Now Empower Your Budget understands emergencies may come up. This is where your emergency fund would come into play, however if for some reason money must be put on the card payments must still be made. Not paying will induce a late payment. Companies may also revoke some reward benefits and increase the annual percentage rate (APR). While this may not seem like a lot this is how many get into debt. The average credit card debt in 2021 is over $6,000. SIX THOUSAND DOLLARS, while that is not too much that is just credit card debt. If someone offered you $6,000 most would be grateful for that. We cannot stress this concept enough, but please pay your credit card balance. (The best would be on time in full!)
Best Starter Student Debit Card
We have talked about credit card purposes, how to pay, but what’s next? Well… getting a card! There are so many different types of cards. What should you get? As talked about, different cards offer different rewards. Common companies include Capital One, Visa, Discover, Chase, but this is not all.
The youngest age to have a credit card within your own name and only you is 18 years old. Our top recommendation for a college student is the Discover Student Card. With a competitive cash back rate, low APR, no annual fee, one free late payment, good grades reward and more. This card makes first time credit card use easy. Check it out here: AFFILIATE LINK
Secured Credit Card
Another option for those worried about over spending may start with a secured credit card. With a secured credit card users get a mix of benefits from a credit and debit card. Much like a debit card, users deposit a certain amount to the credit company and then use the card like normal. The difference is the money you put in is the amount of money you can spend. Users get the same benefits and rewards of a real credit card but only spend the money they have much like a debit card. Sticking with Discover we recommend the Discover It Secured Credit Card. This is offered with no annual fee, a refundable security deposit, and cash back on all purchases. There are just a few bonuses to the card, click this LINK to check the card out and learn more.
For all those travel lovers looking into a definite contender. While we cannot offer just one card travel we can highly recommend the Capital One Venture Card, Chase Sapphire Preferred Card, or American Express Platinum Card. Each card has specific perks and rewards special specific users. When thinking about getting a travel card we really recommend doing your research. Of course you must do your research for any credit card. Travel cards are for those who are not new to credit cards and understand the fees, rewards and different ways to use the product.
I’m not Convinced… Alternatives
Still not convinced and scared to use credit cards? That is okay! Credit cards are not the end all be all. For those who follow financial personal Dave Ramsey, you may choose to never borrow money in any form including credit cards and that's okay! In that case debit cards are your next best option. This allows you to spend your money and nothing more. The easiest way to get a debit card is just talking to your bank. From simply giving a call or going in person, bank employees are equipped to help you and walk through the process of getting a debit card. For those wanting something more out of your debit card there are now companies that offer cash back rewards! This allows a user to get a perk with the debit card. Much similar to the secured credit card talked about above, a cash back reward debit card will not count as credit. This will not affect your credit score unlike any credit card! Check to see if your bank has any offers like this. If not, check out this website for a list of great cash back cards to consider!
Credit cards are here to stay. As an easy way to spend money, users get tested in their personal spending usage. Thus starts the ‘horror stories of credit cards and the avalanche of debt,’ however as we mentioned before paying off the card in full every month is an easy way to reap the benefits of your credit card without the hassle of extra expenses or fees. The main takeaway: PAY YOUR CREDIT CARD IN FULL!
However for those who would rather not have a credit card that is okay! Instead, using a debit card is the best alternative. While a regular card with any bank is great, checking to see if there are upgradeable options like cash back rewards is a great perk to check and see. Credit cards provide many benefits and challenges for those questioning making sure to do some research is always a first step. Another great resource is your bank, or any bank for that matter. Financial concepts can be hard and banks are there to help. Whether it is setting you up for a debit card to answer questions about credit cards, bank employees have a variety of resources and knowledge useful to help you make the best money choices. They can also help point you to a financial advisor for more help.
If going back or trying to find a financial advisor is overwhelming, contact Empower your Budget or comment below and we will get in touch with you! We would love to help you with any financial questions and guidance.
For more information check out some of these videos to help understand credit cards! Empower Your Budget recommends all of them to learn as a learning tool these videos are not our brand telling you what to do. Please use this information and make an educated decision for your situation.
Master your money so money cannot master you.