[This article was first published on The Simple Dollar in 2020. It was updated in March 2022.] Also: The best starter credit cards for no credit Rather than using your credit card to buy things you can’t afford, just treat it as a convenience that helps keep your identity and bank account safe while also giving you some rewards. If you don’t have that cash sitting in your checking account right now, don’t buy whatever it is you have in mind. Wait. If you ever find yourself in a situation where you can’t pay off the full bill, put the credit card down for a month or two and live off of your checking account until you have the card paid off in full. That way, your mistakes don’t compound on themselves. They’re going to charge you interest on every cent that you don’t pay off, however, and that interest rate is high. Let’s say you get an $800 credit card bill in the mail, and the minimum payment is $28 (interest plus 1% of the balance). If you just make the minimum payment, that leaves $772 on the card. If you have an APR of 30% on the card, you just got dinged with (roughly) $20 in interest. Your balance just went up to $792. Yep, next month you still owe $792, even though you threw $28 at the card. Not only that, you now have that $792 debt hanging over your head. Add more to it, and the interest will grow, too, month after month. Minimum payments barely even scratch the balance, and that’s by design. Credit card issuers make real money off of you continually paying interest. You get nothing out of it, too. All you got was the ability to make an impulsive purchase, one that you’re paying off for months or even years, and you’re paying a lot more than that initial cost, too. How bad is it? If you have $800 on a card with a 30% APR and a minimum payment of the interest plus 1% of the balance, it will take you 113 months to pay it off, and you will have paid a total of $1,261.04. Yep, $461 just vanished out of your pocket for nothing. Also: The best travel rewards business credit cards In general, cards that offer direct cashback or offer direct discounts at the retailers you already use are the best options, particularly for new users who aren’t trying to game the system. All of those things are made much easier if you have good credit, and not paying your bill means that you have bad credit. Not only that, the company will hound you for years and eventually turn the debt over to a collection agency, which will also hound you for years. You’ll get phone calls and letters using all kinds of strategies to get you to pay. While it seems like an immediate solution to your problem is to just throw the credit card bills in the trash, they don’t just disappear. The problem festers, and it builds into other consequences that can hurt your career and other areas of your life. Just stick to the advice above: pay off your card in full every month. Second, there are a lot of emergencies where credit cards don’t help. Theft is one. Identity theft is another. What do you do in those emergencies? You should strive to have a cash emergency fund sitting in a savings account at a bank where you can access it if you need it. Also: The best credit cards for good credit Keep those wasteful expenses in mind. Turn them over in your head, again and again. Knowing that those things aren’t good uses of your money will help you cut back on things that don’t really matter. Also, while you’re looking through your bill, look for expenses you don’t recognize. They can potentially be signs of identity theft, where someone has access to your credit card information and is making charges you didn’t approve. If you find any, contact your credit card issuer immediately to get it fixed. The first option is to look for someone who will co-sign on a card with you, probably a parent or another very close friend or relative. Their willingness to do that is a major extension of trust because by co-signing, they’re saying that they will pay for the balance on the card if you fail to or are unable to do so. You are hanging debt on them if you don’t take care of things yourself. Another approach is to ask if they will add you to their current card as an authorized user. In that situation, they’ll likely just cut up the card that comes in your name, but it can provide a starting point and a small boost to your credit that will help down the road when you get your own card. Because of that deposit, financial institutions will issue a card to someone who might not otherwise qualify for a card because of their bad or nonexistent credit. After all, they’re at reduced (or zero) risk of someone not paying their bill because of said deposit.
