Credit cards are an integral tool of modern personal finance. In fact, they can be life-saving in dire emergencies and a great way to stay on top of your everyday bills, even when you’re strapped for cash. However, in most instances, you must pay off your balance every month to avoid accruing interest. The interest rates on credit cards can be extremely high and improper credit card usage can end up costing you. Still wondering “Should I open a credit card?” Liberty Debt Relief is here to cover credit card pros and cons so you can be empowered to make the right decision for your unique situation.

Types of Credit Cards

There are several kinds of credit cards, all offering you, the customer, different benefits. Before applying, evaluate your lifestyle and needs and determine what benefits would best serve you. Here are a few to look for:

Rewards – These include cash back, travel miles, discounts with merchants, and access to exclusive clubs.

Low Interest – For those with good credit, this kind of card is ideal for those who carry a balance from month to month.

Balance Transfer – Additionally, those with good credit looking to save some money can look into this option. These offer low (often 0%APR) introductory rates for moving existing high-interest credit card debt to this new card and can save you money in interest and fees. Typically, you have 12-18 months to pay off the balance before the rates change.

Secured – This type of credit card requires a security deposit in exchange for a credit limit. If you have a short or less than optimal credit card history, this may be your best option.

The Ups and Downs of Owning Credit Cards

Pros

1. Build Credit History – If you have a lackluster or non-existent credit history, establishing and maintaining good standing with a credit card can improve your score and lay the groundwork for additional credit opportunities, such as mortgages.
2. Earn Rewards – As we mentioned above, many financial institutions offer rewards for purchases made with their credit cards, which means you can actually earn money each time you swipe your card. When considering the credit card pros and cons, keeping rewards high and interest and fees low is the sweet spot of credit card ownership.
3. Convenience – Having a line of credit means you can get more done with less cash on hand. You have more payment options and, if you pay off your balance each month, this convenience can help you (or even your business) save time and money.
4. Cash for Emergencies – Keeping your credit card balance low means you will have a cash reserve for emergency situations. But, beware, cash advances often carry higher interest rates than regular purchases.

Cons

1. Debt Accumulation – Without discipline, debt can accumulate rapidly. Maintaining responsible spending habits will be necessary to avoid overspending and accumulating interest charges or other fees. Additionally, maxing out your credit line can negatively affect your credit score.
2. High Interest Rates and Fees – If your credit isn’t stellar, you might be faced with high-interest credit cards. These cards can rack up significant interest fees is not paid off each month. Late payments can also incur large fees, so it is important to at least pay off the minimum due each month.
3. Potential for Fraud – Having a credit card puts you at risk for fraud, in which your account is hacked and used without your permission. If you decide to get a card, be sure to choose one that offers protection.
4. This list of credit card pros and cons is not exhaustive. You should seek out information that might be unique to your specific financial situation.

How to Prepare

If you decide that a credit card is a good option for you, here are some things to bear in mind in preparation for the jump.

1. Build and Maintain Good Credit
   It’s no secret that customers with better credit will have access to better terms, including lower interest rates, better rewards systems, and higher credit limits. Maintaining good credit involves making consistent on-time payments on existing debt or eliminating existing debt entirely.
2. Challenge any Negative Information
   Thoroughly review your credit report for errors or suspicious activity. Be sure to challenge any incorrectly reported information and insist on having it removed from your report. Cleaning up your report can go a long way in demonstrating credit-worthiness.
3. Avoid Taking on Other Types of Debt
   It’s best to avoid other types of debt when opening a card, as these can raise your debt-to-income ratio, making acquiring a credit card that much more difficult. This also includes co-signing for someone else’s debt, especially an irresponsible or financially-strained person.
4. Improve Your Financial Literacy
   Now would be a great time to learn how to budget and optimize your spending habits. Track the flow of money into and out of your accounts and be ruthless in eliminating unnecessary expenses.

There’s no doubt that credit cards can provide enormous benefits, but they can also be nightmares if used incorrectly. If you’re still wondering “Should I open a credit card?”, be sure to do diligent research before taking on the responsibility.

Liberty Debt Relief

Liberty Debt Relief has given thousands of customers a second chance at financial freedom. Whether you’re facing overwhelming credit card debt, or you’re looking to rebuild your credit after a rough patch, we can offer your expert debt relief counseling so you can get on the road to a healthy financial future. For more discussion about credit card pros and cons, feel free to contact us today!

Dealing with Credit Card Debt in College

Academics are not the only priority students need to make throughout college. The hundreds of textbooks, tuition payments, school supplies, and outings usually add up quickly and tend to leave thousands of recent graduates with a daunting amount of credit card debt from their time in college. The good news is that, while getting into that financial rut tends to be a lot easier than many people think, getting debt relief is possible and builds lifelong habits that will streamline your success.

To make sure you are not one of the many who graduates with an ‘F’ in financial responsibility, sit down and take some notes on how you can keep your credit card debt down in college.

Make Financial Health A Priority

Before even attempting to understand the ins and outs of getting your own credit card, it is crucial to understand that your financial well-being can directly affect your overall health. Place your financial success on the same pedestal as your academic and health accomplishments and think of your finances as a priority instead of a resource.

Imagine, for example, that you are standing in the middle of a platform that is balanced by your priorities in its four corners: mental, emotional, physical, and financial. If one of those corners is too heavy or too light, you fall over and it becomes difficult to regain balance. Accruing too much credit card debt in college has the same impact — as soon as you let it get too heavy, you become unbalanced and it is difficult to get back on your feet. Money is not everything, but it definitely impacts your general quality of life and should be treated as such.

Don’t Overindulge in Card Offers

Almost as soon as you open your first textbook, you will likely be swarmed with dozens of credit card offers. As tempting as it is to apply to each one, credit cards are not free money and you can find yourself in serious financial trouble if you are not careful. That being said, having a credit card is a great way to build your credit score to help you get better student loans or maybe even get a new car when it comes time to begin your career.

An optimal choice to minimize credit card debt for college students is a credit card designed specifically for students. These cards will have significantly lower interest rates and fees and sometimes even have special offers for full-time students, such as deferred payment methods or cashback opportunities. Regardless of which card you choose, make sure to limit the number of credit accounts you open and to check all the fine print before signing up.

Familiarize Yourself With FICO

A’s are not the only scores to strive for throughout college. When opening lines of credit, it is absolutely essential to understand that every account plays into your overall FICO credit score. This score acts as your financial grade point average, and is generally the first impression businesses and banks get of you when you seek more financial opportunities in the future, whether that be applying for another credit card or loan, purchasing a car, or renting an apartment or home.

FICO scores are determined by multiple factors and range from 300 to 850 where 850 is excellent and 300 is poor. Thirty percent of your overall score depends on how much you owe and how much available credit remains, 35 percent depends on your payment history, 15 percent is determined by the length of your credit accounts, 10 percent is determined by the types of credit you have, and the remaining 10 percent of your score depends on how much of your credit is new. The higher you allow your credit card debt to grow in college, the lower your score will likely be upon graduation and the more difficult delving into adulthood may be.

Aim For An ‘A’

Now that you understand your FICO score a little better, it is important to work hard to improve it. A high credit score means you are considered a low risk to potential lenders and can help lower interest rates while increasing spending limits and financial flexibility. To ace your financial literacy and set the curve for credit card debt for college students, set a plan to improve your FICO score.

This can be done by making higher payments more regularly, using your credit for smaller purchases that you can pay off within the billing cycle, keeping accounts open for longer terms, and refraining from maxing out your card every few months. Generally speaking, students who own credit cards are most successful when using the cards only for essential items or for emergency situations. Never use your credit card for luxury weekend excursions or to treat yourself to an expensive item that you wouldn’t be able to afford without a large line of credit.

Work, Work, Work and Work A Little More

Yes, college is difficult and academics take priority, but a little scheduling and time management can go along way, especially when trying to build your financial repertoire. Getting a couple part-time jobs, freelancing gigs, babysitting opportunities, or even a full-time job can significantly lower your chances of going into extreme debt, especially if your first few months of financial freedom took a heavy hit on your bank account. This is not to suggest that every student has to work 60 hour weeks on top of courses and extracurriculars, but if you do happen to come across a financially burdensome situation, it is always better to try and solve it sooner rather than later.

College is all about learning and planning for a successful career in the future, but a big part of that education comes in the form of financial literacy. Take the necessary steps to stay out of credit card debt in college and you will be sure to secure the positive and successful financial future you have always dreamed of.