Credit Cards
Hello! It is Halloween week and I hope you all have some fun planned for the coming weekend. When it comes to the holidays, it is easy to overspend. This will lead us into our topic of the week: Credit Cards.
When you get out of college and are officially on your own (to varying degrees), you will hopefully have a stable stream of income. With this stability comes the opportunity to apply for credit cards. Now, credit cards can do some great things for you if they are used responsibly. Unfortunately, this is often not the case.
Your credit score is a key factor in having the ability to get car loans, a mortgage, etc. How do you generate a credit score? Borrow money. How do you start the process? Get a credit card.
*spooky music begins to play in the background*
Story time.
So, I graduated college and got my studio apartment on the outskirts of Dallas in June of 2018. Working in the hospitality sector, I was constantly around people who were going on amazing trips. I of course wanted to get in on the action and thought one of the travel credit cards would help me pay for potential trips with the associated points.
I was immediately approved for a $2,000 line of credit, received some points for spending money I already would have, but quickly noticed that my spending had increased. I was buying season tickets to college football games, speeding up the process of furnishing my apartment, and just generally doing things that I should have saved money for. Fast forward 4-5 months and I had maxed out my $2,000 limit.
I am incredibly grateful that I had such a low limit early on as this slippery slope may have continued even further had American Express given me more money.
I cannot explain to you the amount of stress I was under during this time. And I know this balance is pennies to the amount many Americans currently have today. However, I felt irresponsible and this fog weighed over me for months. I was fortunate enough to have my tax return cover a good portion of my balance in early 2019 and I established a budget to make sure I would pay off the rest shortly.
Since paying off the $2,000, I have never had an outstanding balance on a credit card. However, I have gotten a couple more cards (Sapphire & Venture) since. I only did this because my apartment at the time rolled out a payment system where I could put my rent on a credit card. This allowed me to hit the minimum spend requirements in a short amount of time and capture a ton of points that paid for a few trips I took in 2019.
I would not recommend doing this (getting several cards) unless you are extremely disciplined. Having the six-month period (card perpetually maxed) I had shocked me, and I refuse to enter it again. I will now explain to you the simple personal finance formula I use that works for me:
- Buy everything with a credit card
- Pay off the complete balance when paid
- Immediately transfer remaining money to savings aside from maybe $100
- Repeat
As a result of this routine, my checking account balance is always extremely low, and I have never touched my savings account. With this, I have produced the mentality where I do not have money to splurge on things. I do not really buy new clothes, go out much, or simply spend money on things many kids my age tend to do. Worth mentioning - I do not have a problem spending money on things that will make me better:
- I do have a gym membership
- I spend money on this site
- I really ignore cost when buying books
If you are thinking about getting a credit card, I would highly recommend the Youtuber @AskSebby. He is great at illustrating which card is right for you. Just please remember, by using a credit card, you are entering into an instantaneous loan with the bank at an extremely high rate. You should not be purchasing anything on a credit card unless you can pay for it in full.
Society has normalized debt to a paralyzing degree. Credit Cards are often referred to as “the middle-class trap” because of this. Furthermore, the terms are often very confusing, and people do not take the time to understand how the high interest quickly compounds.
If you have had trouble with your spending, just know that there are solutions and that you will be rewarded inner peace with consistent hard work and strict budgeting. It is an absolute grind but always worth it.
Thank you for a subscribing to our newsletter and I hope you have a great week!