With the recession almost imminent in the United States [as of 2008] and with many Americans teetering at the brink of bankruptcy due to the morgage crisis, I feel compelled to share a few lessons I have learned from recent experience in regards to credit card debt.
When I got hold of my first credit card, I didn't think much of it other than to use it to buy my favorite computer, a 30GB Zune player, a Guitar Hero III set, and even a brand new desk to accomadate my new computer. This is because my card's credit line started off fairly high for starters. But as the monthly bill came in and as the interest climbed, I began to realize that credit cards are not all what they were cracked up to be. Thankfully, I am currently financially capable of keeping up with the monthly payments. On top of that, I had a monthly car payment for my Honda Accord to deal with [which I still am].
Now for the tips. To start off, I'll use the life of a typical high school graduate still living with his/her parents as an analogy.
1. First and foremost, I will start off with an age-old tip that every right-minded person with financial experience will tell you: Never spend more than you can earn. This is a pretty common mistake with every newbie who thinks he/she is rich with a card that has a $1,500+ credit line. Since America is a country where good credit is important, we all understand that you will eventually have to sign up for a credit card one way or the other. So the question will not be "if you sign up for a credit card". It's will be "when will you". When you do, you will have to ask yourself this question and consider it carefully.
How am I going to use this credit?
If you intend to use such credit to get yourself that nice Playstation 3 and a nice 6-foot wide flat screen HDTV to go with it, you're starting off on the wrong foot. For newbies, credit cards are for emergencies only. And I mean REAL emergencies such as when you have absolutely no money in your regular checking account and you still have to pay off that car bill that you're parents handed down to you because your paycheck from Burger King hasn't come in yet. Don't be afraid to use the credit card in that sort of emergency because you can later pay off that balance over time later since the average bill for credit cards are pretty low for cards that have a very low balance [ie: a balance of $600 on a credit card that has a $5,000 credit line]. On top of that, always remember to pay more than what the credit card bills require every month [ie: paying $150 on a credit card bill demanding only $100]. This will not only help reduce your card's balance very quickly, the interest will also reduce over time. As a result, your next credit card bill might become cheaper than the last one. Once your credit card is fully paid off and the balance is at $0, you shouldn't have to worry about any more bills. Ok, the monthly payment on your hand-me-down car still has to be paid; which brings me to my next point.
2. Obviously, you have to keep the payment on your car current. If you have a job that pays at least $8.50 an hour, you should be ok for as long as your parents pay the insurance; which doesn't normally look too kindly on drivers younger than 25 years of age since such drivers have a habit of causing car accidents because they feel compelled to race around the streets in the middle of the night. Anyways, just like credit card payments, car payment are best paid early and with more than what the monthly bill demands. That way, the car will be paid off far sooner than what the lenders at the bank predict. Of course, car bills are not entirely like credit bills. Unlike credit card bills, car bills never get cheaper every month simply because you paid more than what was due. The bill will remain the same every month no matter how much you pay. Once the car is fully paid off, I suggest that you keep the car for as long as humanly possible and keep it maintained as needed. Never buy another car unless you are certain that you absolutely have to [ie: your hand-me-down Chevy Corvette won't be able to accommodate a family of five once you get married in the near future].
I don't want to get into any details about owning a house since that is too complicated for me to both understand and explain at the moment. I'll leave that to the next SimV member who wants to post a tip on this thread. Anyways, now that you know what I know, I hope any newbies around here have a prosperous financial future using the experience I have just shared. If anyone around here has a money-saving experience to share with others, than go ahead.
NOTE: The tips I posted are mainly for those who are still young and are just starting life with credit.
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