For the vast majority of people, your financial success will be tied to your credit. In today’s economy, it is virtually impossible to function without credit. Heck, it is next to impossible to even understand credit. However, developing an understanding of how credit works is imperative to making the most from your money and eventually coming to a place where your money works for you! 🛠 💵 🛠
If you think that you can ignore money by burying your head in the sand like a stubborn ostrich, you are absolutely right. You can do that, BUT money will cause you to struggle and stress forever. On the bright side, with some research, you can learn about money, no matter the amount you have now (or don’t have). We have the GIFT 🎁 of looking at a screen and all of the information you could ever want is right there in front of your eyeballs. So stop acting like an ostrich, and start acting like a wise owl. And, I tell you what, I am going to help you by writing a money series that will give you education, and hopefully a little entertainment, that you can use to begin learning about how money works!
Side note: I am having an 11 year old help me develop this series. I would hope that if she can understand these concepts, you will be able to as well. Do not feel bad if not though, she is super bright and wise beyond her years. If you struggle with these concepts, drop me a message or email. I am glad to help!
Topic #1: Credit Cards
Credit cards are where we will start, because let’s be real… most of us know that credit cards are used to buy stuff. Practically all stores and banks offer credit cards, and how great is that?? We can swipe (or insert the chip) into a slot and blammo… STUFF IS YOURS!
It is great to have credit cards, but (you had to know there is a BUT), if you do not understand how to use them, using credit cards are the WORST thing you can do for your financial success. Let me say that again, so you understand the weight of this statement.
💰 If you do not understand how to use credit cards, using them is the WORST thing you can do for your financial success. 💰
Now that we have that out of the way, let’s clarify a few things.
Interest – Let’s talk INTEREST. This one is simple. INTEREST IS 💲 MONEY WASTED 💲 BECAUSE IT GOES DIRECTLY TO THE BANK AND NOT BACK TO YOU. 💸 💸 💸 💸
Interest is money charged to the borrower (YOU when you use the bank’s money) for the delay of a repayment of debt.
Interest is normally a percentage of your owed balance, added to the balance on a daily, weekly, or monthly basis.
Compounded interest: You get charged more interest by adding interest to your balance every month. You should be able to see how this will add up over time!
😈 Interest is a necessary evil sometimes. 😈 If you must use the bank’s money over a period of time you will have to pay some interest. *The key is to pay the least amount of interest as possible.*
How to avoid paying interest
- Pay your balance off every month. If you do not owe the bank for more than one statement period, you will not get charged any interest, ever. Interest is only charged when you carry a balance.
- Most credit cards have balance transfer offers. You can have a balance with 0% or low interest rate for a period of time. Check the details.
- Normally, one time fees are charged.
- If you do not pay the balance within the time frame allowed, the interest is backdated.
How to pay less interest if you cannot pay in full monthly
- Keep your credit score high by making payments on time and greater than the minimums.
- Check the interest rates on your credit cards. It will be on your statement or on your online account. Contact the card companies to ask for lower interest rates regularly. Rates normally range from around 13% to 24%, depending on your credit score and payment history with your card account.
- Interest rates can be very high. Check out this article talking about a legal 79% interest rate: https://www.creditcards.com/credit-card-news/first-premier-79-rate-fees-credit-card-1265.php.
- There is no legal limit on interest rates banks can charge. Click here for the Consumer Federal Protection Bureau website.
Best use of credit cards
Credit cards can be a great tool to leverage your credit, improve your credit score and finance some purchases. Leveraging your credit means to get approved for loans with great terms to make major purchases.
- It is CRITICAL to have at least one credit card in your name. Up to three accounts can help your credit.
- The balance on your credit card is very important. Maintaining the right balance on your credit card is a simple equation. It should be 10% to 30% of your credit limit. For example, if your limit is $1000, only carry a balance of $100-$300 at any time. This shows creditors that you can responsibly manage the debt you are given.
- There is no need to make early payments if you have the correct balance to limit ratio. Showing a $0 balance does not help your ratios.
- Keep them open for a LONG time! The older your accounts are, the more they help you.
- Do not open a bunch of store cards. Unless you go to the store a lot and are able to pay the whole balance regularly, these can add up and be difficult to keep track of.
Enough already? 🤪 😵 😊
There is so much to know about how to manage money, but I think this is a good start. This article provides the basics of credit card usage. I do not want to completely blow you away immediately, so check back for future articles that will guide you through financial topics.
Disclaimer: Although I have financial experience, I am not a financial expert. I speak from personal experience, education (I am a Master’s student with a focus in Finance, a Professional Realtor, and homeowner), and professional training (I trained for the largest credit repair company in America). Consult a financial advisor prior to making any financial decisions that will impact you.
My goal is to help you be like the wise owl. I am available for your questions and to assist you in reaching your goals.
Call or text: (303) 907-1879