Wednesday, December 18, 2013

Lesson 11: Credit Cards

Lesson 11: Credit Cards

Financial Planning for the Recent Graduate

Crapital One.  American Depressed.  Master(to you)Card.  Unfortunately, credit cards have been marketed so well into our culture, we think we can't live without them.  Have you ever noticed that sometimes the first piece of mail you get when you move to a new house or apartment is from a credit card company?  It's become an industry that boasts an $800 billion+ debt amount for Americans, and the problem is it's absolutely crippling our ability to save and invest.  Here's why:

We won't win: As recent graduates, we need to realize that the credit card companies didn't design this system for us to win.  We can't outsmart or beat the credit card company.  They know eventually we will forget to make a payment, or a financial emergency will come up right when it's time to pay the credit card bill.  All of the cash back rewards, airline miles and bonus points are all ways to attract us to go further and further into debt with them.  It's a no-brainer for the credit card company to give us 1-2% cash back when they're making 15%-29% interest off of us when we don't pay the bill on time.

Fees and interest: Do me a favor.  If you're one to have a revolving balance on your credit card (meaning you keep the balance from month to month), look at your next bill and circle the amount of interest and fees you're paying to the credit card company every month.  Enter that number into this calculator with the same interest rate as your credit card to show you how investing that amount can work for you, not against you.  It'll astound you how quickly interest piles up on your card if you don't pay it off every month.

The only time I would ever recommend getting a credit card as a recent graduate would be if you satisfy all of the following: You have to have your emergency fund in place, the card has to have a $0 annual fee, you use the card for specific purchases (gas/grocery), you can never go above 50% of your credit card limit, and you can NEVER, EVER, EVER forget to pay your credit card bill every month.

If you're tired of receiving credit card offers that you'll never use, I recommend going to this website to either opt out for 5 years, or permanently.


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