3 mistakes people make when they get their first credit card
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We here at TPG love credit cards. From massive sign-up bonuses to increased consumer protection, no matter what you’re looking for, there’s a credit card out there for you. But like many of you, I started out my credit card journey at the tender age of 18 with no clue how they worked or how I should use them — and I paid for it. Here are three top mistakes people make (including myself) when they get their first credit card.
If you’ve spent all your life using cash or a debit card, you’ll likely have some shock the second that plastic falls into your hands. Why? Because when you use your cash, it’s gone. Similarly, transactions are deducted in real-time (or near real-time) from your debit card, which means you can both see (and feel, with overdraft charges) when your account goes into the red.
The same cannot be said for credit cards, whose credit limits can range into the tens of thousands. Now, if you’re anything like me, you probably received your first card, got dollar signs in your eyes, and promptly maxed it out on some impulse purchase. As I was working a part-time job at a fast-food restaurant, there was absolutely no way I was going to pay it all off when my statement came due, which leads me to the second mistake:
Only making minimum payments
Like I stated above, as soon as I got my first credit card I went wild- and that’s normal. Without someone teaching me about fiscal responsibility, there was absolutely no reason why I would know not to spend all that money. Unfortunately for me, a reality check came in the form of my balance due at the end of the month.
With thousands of dollars racked up on my credit card and only a part-time job to pay it off, I resorted to doing what most people do. I made my minimum payments, but that was it. I’m sure most of you are cringing right now and so am I. With interest rates as high as 30% (or more!) per month, making minimum payments on your credit card becomes very costly, very quickly.
Using a credit card instead of cash due to its additional benefits is only the best option when you can pay your bill in full each month. Otherwise, you’re simply losing money to interest payments.
Getting a card without rewards
As it stands, I’m a regular credit cards guru. I can list you the benefits of my favorite travel cards and recommend the best card for Amazon purchases without breaking a sweat. But when I got my first card? I walked into my local bank and signed up for the card featured on its brochure, which was marketed to first-time cardholders.
Unfortunately, that meant I was putting all my spend on a credit card that gave me nothing in return. No points, no cash back — all I was doing was spending money I didn’t have and paying interest as the result.
It can be difficult for those without established credit to acquire top-tier rewards cards, I’m not debating that. Often, banks will want a credit history and a proven track record of paying your debts. But that doesn’t mean that you can’t get a card that is rewarding. There are tons of credit cards available to those who are just starting to get into the rewards card game. Often, they’re mid-tier cards with lower annual fees and moderate sign-up bonuses, but either way, they’re miles ahead of that interest generating debit card you’ll otherwise be holding.
It’s easy to fall into the credit card trap, but avoid these mistakes and save yourself some money while not leaving any cash on the table. Next up? Putting those rewards to use on hotels, flights and vacations.
Additional reporting by Carissa Rawson
Featured image courtesy of bohed/ Pixabay.
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