Blue Collar Finance

At some point in your life, you’ll likely start thinking about taking out your first credit card. Pretty much everyone gets there sooner or later. A credit card is a great tool that can save you a lot of time, and in some cases even money – but it has to be used responsibly, and with a full understanding of the implications behind it.

Because if you’re not careful, a credit card can cause you a lot of harm in the long run. It’s not hard to find all sorts of horror stories of this type, and some people tend to have a suspicious attitude towards credit cards because of that. But in the end, it boils down to how responsible you are and whether you have the determination to go through with the deal until the end.

Basic Concepts

The basic idea of a credit card is not too different from that of a loan. You pay with the card (or take money out of it through ATMs in some cases), and instead of having that money automatically withdrawn from a checking account, it piles up on a credit line. At the end of the month, you get a bill for everything you’ve bought with your credit card. If you can’t pay that bill on time, you get charged interest.

What makes credit cards different from a typical loan is the interest rate. Loans are meant to be repaid over periods of months, sometimes even years. On the other hand, a credit card is supposed to be paid off much more quickly, and carries harsher penalties for those who don’t.

Who Needs One?

Not everyone needs a credit card, but most people nowadays can definitely benefit from one in various ways. It’s a great tool for online shoppers, for example. Pretty much any online shopping site accepts the popular types of credit cards, and you’ll often be able to pay without any extra fees that way. For example, paying with PayPal will often incur a $1-2 extra charge in most cases. Your bank might charge you for direct debit purchases as well.

A credit card is also good for those cases where you know you will eventually be able to afford something, but you can’t buy it right now and yet you want or need to. Keep in mind that you should be very realistic with yourself regarding your ability to pay off the balance on that credit card eventually though. If you don’t, the consequences can be severe, especially for a bigger purchase.

How to Get a Credit Card

To get a credit card, start by talking to your bank. They should have some deals readily available for their customers. Even better, you won’t have to go through any approval periods or other similar annoyances, because the bank already knows exactly how much you’re earning, spending, and saving. They will be able to give you a good deal designed to match your current situation as closely as possible.

If that doesn’t satisfy you, you can try an external card issuer. These might sometimes be able to give you better deals than your bank, but this usually depends on catching a good deal at the right time. Pay attention to the internet and follow some sites that list such promotions to maximize your chances.

Consider a Loan Too

Sometimes, a credit card is the wrong solution to a problem you might be having. If you just need a single “burst” of money, consider the option of taking out a loan instead of committing yourself to a credit card. Remember that a credit card comes with a long-term contract and has various implications on your finances, which a loan doesn’t.

Plus, a loan can be spread over a much longer period in most cases, so it’s a more appropriate solution if you need the money for a single purchase. With a credit card, you’re pretty much just buying yourself an extra month or so. With a loan, it’s a completely different story and you can sometimes extend the purchase by a year or more.

Common Mistakes

The main mistake you should avoid when using a credit card is to treat it like extra money. It’s not that, it’s just extra time to get money you were already expecting to get in the first place. Seeing a credit card as free money is one of the fastest ways to find yourself buried up to your neck in debt with no apparent way out of the situation. And it happens to more people than you’d expect – in most cases just because they were careless.

Remember that a credit card is also a financial asset like any other. You should do your best to protect it and keep it secure. Credit cards tend to be targeted very often by hackers and other types of malicious actors, so follow any guidelines and recommendations that your bank might have regarding the use of your credit card. And as soon as you notice anything out of the ordinary, alert the appropriate department.

Landing a promotion at work is something you should be striving for in any case. But it’s not just about getting to that point – you should also know what to do with all that extra money to begin with. Some people go about their careers in a very undirected manner in this regard, and then end up wondering why things aren’t lining up as they expected.

The truth is that it takes some skills to deal with additional income, and you have to know how to integrate it into your life properly. Otherwise, you’re just going to waste that money in the best-case scenario. And in the worst, you’ll find yourself spending more and more until you can’t afford your lifestyle even on your new increased salary.

Should I Save?

Saving is of course always an option. But in general, it’s only a viable one if you don’t already have enough savings built up in the first place. There’s a reasonable limit to how much money you should have saved up, and continuing to pile up more after that is more or less a waste of that money’s potential. If you’re not sure, talk to your bank. They should have some suggestions based on your current situation, and what they’ve seen in other customers in the past.

Of course, it’s never a bad idea to maintain a good level of savings, so it should go without saying that this is exactly where your money should be going if you don’t have that foundation established already.

Don’t Jump to a Higher Level Yet

You might be tempted to boost your lifestyle in this way or that. After all, you can afford it now, and you’ve earned it. So why not switch to a faster internet contract, upgrade your computer, buy a new car, and more? The problem is that all of these things are attached to a higher lifestyle, and you have to be prepared to truly make that switch.

Because once you do, it will be very difficult to go back. And it’s also easy to overstep and start spending on things that are above even your new level. This can lead to disappointment once you realize that you can’t keep up with that lifestyle in any realistic manner, and you’re going to have to cut back on your expenses eventually. Needless to say, this can be a very soul-crushing moment if you’re already used to living life another way.

Can You Keep the Ball Rolling?

On that note, consider if you can continue to maintain that new lifestyle in the first place. If it’s because of a raise at work, that’s great – you can probably reasonably expect that your life will continue in the same manner in the future. But if the boost was only temporary, like hitting the jackpot from the lottery, that’s a completely different story.

If that’s the case, then making any permanent changes to your lifestyle is most likely a bad idea that will lead to negative developments in the future. Make sure that you can maintain the current status quo for as long as you will need to if you want to live your life in this way.

Adapting Your Habits

Your current habits will need to change as well. From small things like the ones we described above, to more major ones, like how often you eat out, where you do your grocery shopping, and more. If you need to take out a loan, you’ll deal with different conditions compared to your previous situation as well. All of these things will take some time to adjust to properly, and you should not be surprised if you are finding it hard to change your life in the necessary way.

Personal Considerations

Last but not least, remember that extra money can sometimes draw out the worst in people around you, and you should be prepared for that, whether you like it or not. Don’t be surprised when people start coming out of the woodwork asking for money, reminding you of the “great times” you’ve had together – which you may not even remember at all, because they never existed. Don’t be sad though – take this as a blessing, because it will reveal the leeches in your life. But make sure that you’re prepared to put your foot down and chase them off once they do start showing up.

Because if you don’t, the problem is only going to get worse, and you’re going to find it very difficult to live with the pressure at some point. This is not an exaggeration – it’s a very real problem faced by many people who suddenly come across some extra money in their lives.