If you have never had a credit card (which is common for young people who are just starting out) you may be considering applying for one. You may have even received credit card offers in the mail, which offer guaranteed approval. Applying for and obtaining a credit card is quite easy today because the credit card issuers want and need your business. They are more willing than ever before to issue credit cards to people they would not have even considered in the past.
While credit cards have their place in today’s society, there are good reasons why you may want to avoid credit cards for now. Here are five of those reasons:
1) You have bad credit or no credit. If you have bad credit or no credit at all, you should avoid credit cards at all costs. Any card that you can obtain with either of these situations will charge extremely high interest rates. You will end up paying one-third to one-half more than the original price for each purchase you make. Instead, either work to clean up your bad credit or establish credit in other ways before applying for or accepting any offered credit cards.
2) You are struggling financially. If you are seeking a credit card to ease any financial burdens you may currently have, your financial planning is all wrong. A credit card will only add to the debt you already have. Instead, you need to call your creditors and work out reasonable, affordable payment plans to ease your financial burden, consolidate your debt, increase your current income or find additional sources of income. You also can cut your current living expenses to ease your financial woes. You do not need a credit card at this time.
3) You have little self-control. Are you good with your money? Do you commonly put off purchases until you can better afford them? Do you avoid impulse shopping? Do you have a budget and stick to it? If you answered yes to all of these questions, you have the self-control needed to use credit cards responsibly. However, if you answered no to even one of those questions, this is not the right time for you to get a credit card. Practice financial self-control first, and make sure you can honestly answer yes to the questions asked before applying for credit. Otherwise, you are just asking for trouble.
4) You do not fully understand how the credit card industry works. If you do not have a full understanding of how the credit card industry works, you do not need a credit card right now. You need to understand fees that are commonly charged, how the interest is computed, and how much the credit will cost you. You also need to research and understand why credit card companies or banks commonly offer to raise your credit limit or offer you additional credit cards to the one you already have. You should also have a good understanding of credit reports and how they work.
5) You cannot pay the full balance each billing cycle. One of the worst mistakes that you can make with a credit card is to not pay off your balance in full each month, or at least pay substantially more than the minimum payment. Your unwillingness or inability to do this will end up costing you a great deal of money in the long run. Additionally, making a habit of only making the minimum payment due can easily lead to lifelong credit card debt. If you cannot or will not make a true commitment and effort to pay your credit card balance in full each month, do not get a card.
Regardless of what you may hear, credit cards are not the epitome of financial evil. They have their uses and benefits, but you should hold off on getting a credit card until you are financially ready to do so. Getting a credit card before such a time can lead to decades of debt, if not complete financial ruin. If you are not yet financially ready for a credit card, consider a prepaid credit card instead at this time.