Tuesday, October 19, 2010

My Opinion on Credit Cards

A lot of "frugalistas," as I sometimes call them, have greatly varying perspectives on debt and credit cards. "You should never have debt." "Credit cards are evil." "Credit cards are great." So many opinions, so many points of view. Because there are so many differing thoughts, I thought I'd share mine with you.

If you've read any of my profile or about me page, you know I'm a college student who is engaged to be married. I still live with my parents, who pay for my food, lodging, car insurance, health insurance, and pay me some money every month for gas and stuff like that. I don't have a job, so other than my "allowance," I'm not making any money. Still, I love finding ways to save my parents money, as well as saving myself money on things like clothes, food when I'm out of the house, and fun things to do with my friends and fiancĂ©.

I'm going to come right out and say it: I have a credit card. I know, right? I'm twenty years old and I have a credit card. All you anti-credit card people, pick your jaws up off the floor and keep reading.

I've had a credit card since this past March. I had been researching different CC companies, rates, benefits, fees, that sort of thing for a while. I wanted to start building credit early so my fiancĂ©, JD, and I could buy a house when the time came. I've heard of people renting an apartment or house until they're able to put 100% down on a house, but considering the economy right now, that's not something that's achievable in our near future. (For the record, I completely admire those who can manage a budget so well that they are able to pay for a house completely in cash. If it's possible, I would absolutely love to do the same.) Considering JD isn't able to get a credit card, I decided I would.

So, like I said, I did a lot of research. I thought about doing it through my own local bank, with Chase, or with Discover. After putting a lot of thought into it, I finally chose the Discover Student Card. Here's why:

1) No annual fee.
There is no charge to simply have the card in my possession. This was a big stipulation for me and should be for anyone considering a new CC company. Why should you have to pay just to have a piece of plastic in your wallet?

2) Low credit limit.
Yes, I know some people want thousands of dollars available to them without having to actually pay for it up front. However, I wanted some enforceable boundaries. For starters, before I started couponing, my spending habits were a little...spendy. I didn't really care how much I spent, as long as I had a little money left over by the end of the day. Now, my CC limit is $250. I've never gotten close to that since having the credit card, but at least I know that if I do go over my credit limit, I'd quickly learn my lesson thanks to the hefty fee for doing so.

3) Good cash-back benefits.
On all my purchases with my CC, I receive 1% cashback at the end of my statement period. During different months, I can earn 5% cashback on different things like shopping, restaurants, and gas. It's not a lot, but this also wasn't my main reason for getting this card.

4) High interest rate.
What? Why would I want to have a high interest rate? In short: to scare me into paying my balance off every month. Right now, I believe my interest rate is 24.9% or some such. It's pretty up there. However, since I promised myself I was going to pay off every penny every month, it didn't bother me.

Another thing I promised myself was that I would only use my credit card for gas. This month, all my gas purchases have been going on my card (to get the 5% back this month offers). Up until September and after my statement period was up, I would only charge $20-30 every other week to my CC. This way, I always knew I could pay it off right away. If I couldn't afford to buy gas, I didn't. I didn't charge it just because I could wait to pay for it. I knew my limits and stuck to them. I'm building credit bit by bit and being responsible while doing so.

Now, obviously this method isn't for everyone. Since I don't have any bills (other than the CC) to worry about, I don't have a lot of pressure to pay for so many things. If I had a car payment, utility bills, rent, and food to worry about, I would probably have an actual paying job and a different situation altogether. But the bottom line is, if you can be responsible and very careful with a credit card and pay if off every month, the benefits can outweigh the disadvantages.

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