You know you’re a grown-up when you begin asking yourself difficult questions. For example, is a credit card a good idea? Confronting yourself with this query means you’re aware of your finances. And that you are mindful of how important your financial health is. After all, how you manage your money affects all areas of your life.
For instance, you might need to delay your marriage plans because you’re not yet financially stable to start a family. Or you might need to live outside the city because that’s where you can afford a comfortable apartment. Or you have the confidence to quit a toxic job knowing you have saved enough. These scenarios manifest how money or the lack of it informs your major life decisions.
And having a credit card could be a major life decision. Here are factors to consider before getting one.
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Outstanding Debt
If you have outstanding debts, including mortgages and hard money loans, it’s in your best interest to skip having a credit card in your purse or wallet. That will tempt you to no end. You’ll find yourself purchasing stuff on credit, thus worsening your financial situation.
Now you might be thinking that having a credit card is a viable option to pay off existing debts. Perhaps you plan to funnel funds from your credit card to outstanding loans. However, that does not solve any problem. You’re just incurring debt to pay off debt.
Source of Income
Ideally, you’re considering getting a credit card because you have a source of income. Maybe you’re employed full time. But even that does not guarantee that you can manage your credit card usage well. What if you’re given a credit limit way higher than your monthly salary? And what if you chronically max out that card? You’ll end up spending your salary before it even arrives.
Now, if you have more than one source of income and some assets to boot, then you’re probably a great candidate for a credit card or two. That means your finances are in order, and you’ll likely use a credit card wisely.
Motivations
If you want a credit card because everyone has one, you better reassess your motivations. And yourself in general. That’s not the best way to go through life. You’re only setting yourself up for chronic disappointments.
Now, if you feel it’s convenient to have a credit card because you won’t need to carry cash anymore, try thinking of alternatives. For example, a debit card that won’t get you mired in debt will serve the same purpose.
As for the rewards and discounts offered by banks via credit cards, remember that you can get those same deals straight from retailers. Furthermore, those promos get you to spend more.
Level of Maturity
You probably want to own a credit card as early as possible so you can start building your credit score while you’re still young. While that line of reasoning is logical, it can be a little risky. For example, if you’re still in college and prone to party, there are temptations left and right that’ll get you swiping away like you’re Jay Z. You’ll end up graduating from university with both student and credit card loans. Assess your level of maturity, especially in handling money, before getting a credit card at a young age.
Money Management Style
We have different money management styles. You need to know yours so your financial decisions will be more informed. If you’re a Saver, you’re probably safe with a credit card at hand. If you’re a Big Spender, you might be better off as far away from a credit card as possible, most especially if you don’t have rich parents who can bail you out if you screw up your finances. As with everything, self-awareness is key.
You cannot avail of a credit card because you feel like it’s cool to have one. Or just because your bank makes it easy to get one. You get a credit card because you know it’s a financial responsibility that you are ready to take on.
Remember that credit cards are a consumer product. They make a profit out of your spending. And while they allow you the privilege to purchase stuff even when you’re completely broke, it’s not out of charity. It’s out of a well-designed business model. Protect yourself from the pitfalls of these financial designs beyond your immediate grasp. Get a credit card only when you’re a hundred percent sure it’s a smart idea, and ensure you’re prepared for it.