Financial Literacy For Young Adults With Credit Cards

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teenage credit card

Young adults tend to get very excited as they gain independence from their parents because they will finally be able to earn money and buy things for themselves. To make it more convenient for them to buy things whenever they want, wherever they want, they will acquire a credit card.

Credit cards are very useful, but it can lead young adults to a serious financial black hole. If credit cards get into the wrong hands, it can cause debt pileup that may take the holder years to pay off. Or it may damage the holder’s credit rating.

Things to Consider Before Getting a Credit Card

Before you apply for a credit card, it is very important to  know and understand all the terms and conditions  related to the process. Remember that you are also signing into a legal binding contract. The interest rates and the fees are some of the basics but you have to learn more details. It is important to learn about the liabilities should your card get lost; find out who is liable should you share your card with a secondary user of a joint borrower; determine the reward programs and the benefits included in getting that card; and know how to cancel the card.

You should be mindful about your spending habits, so set guidelines for yourself on how you will use the credit card. Remember that credit card is not an income that increases your money. So you must remember to live well under your means. Limit the number of how many credit cards you get because your credit rating may indicate that you rely too much on credit cards.

Things to Consider if You Have a Credit Card

  1. Avoid impulse buying because you might not have enough money or income to pay it off. Think about the purchase and ask yourself this: do you really need the item or not? Be diligent in paying off your balance in full by the due date. This is because if you carry a balance you will be paying more than the purchase price of the item you buy due to interest.
  1. If you carry a balance find a way to pay as soon as possible because interest is charged every day. Pay more than the minimum amount you owe. Paying regularly can give you a good credit history.
  1. If your balance is piling up, it would be best to stop using your credit card for the time being until you manage your finances.
  1. Avoid cash advances from your credit card because you will be charged interest every day until you are able to repay it.
  1. Keep track of your credit card statements and keep the receipts to determine if there are any errors. This will also help you avoid overspending and make it easier for you to manage your finances.
  1. Don’t be too carried away by your credit card points and benefits to avoid buying too many things, especially those you don’t need.
  1. If there are unexpected expenses, talk to your credit card company and maybe get an alternative solution. Make sure your card PIN and security code is safe.

 Credit Card Myths Debunked

There is a lot of advice given to credit card holders that sounds really smart and sensible, but much of this advice is actually full of myths and big mistakes.

  1. Lowering your credit limit can actually damage your score, because this will increase your credit utilization ratio, which is the ratio of how much you owe to the percent of how much credit you have left.
  1. Paying off your instalment account earlier can actually hit your score because it also increases your utilization ratio. To raise your credit score, it would be better to pay off your credit card than your instalment loan.
  1. Settling a debt for less than the amount you owe can hurt you if done in the wrong way, because having a debt listed as “settled” in your record can damage your credit score.
  1. Prepaid debit cards are not the same as credit cards when it comes to building or rebuilding credit. Prepaid debit cards are not very advisable. Secured credit cards are better options.
  1. Not using your credit cards can actually hurt your credit score. An issuer who sees that there hasn’t been any activity concerning your credit card can actually close it.

For young adults who are engaging in financial responsibilities and credit cards, these are the things that they should be mindful about. It’s also good to check out The Money Book for the Young, Fabulous & Broke by  Suze Orman, it’s an easy read and gives advice on credit card debt, student loans, credit scores, financial issues of the self-employed and more.

About the author / 

Juvy Bandiwan

Juvy is a dedicated woman when it comes to her family and her career. As a single mother she has her fair share of juggling family, work and life. Juvy has a Bachelor of Science degree in Accounting. She has worked in accounting for several companies. As the Career & Finance Editor, she writes from her direct experience. Her column is informative yet easy to read because Juvy writes like she is talking to you directly as a friend.

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