I was 18 years old when I got my first credit card. My job was paying a modest $7.25/hr, but the checks seemed like a fortune to my teenage self.
But even though I felt like I had a small fortune, that didn’t mean that I actually had one. That meant there were still some things that were out of my financial reach.
A credit card was a brilliant way to buy things that I didn’t have to immediately pay for, so of course, I went out and purchased an Xbox 360.
When the end of the month came around, I reluctantly made the minimum payment, and went back to stuffing my face with pizza bites and playing Halo.
This spending happened more than I would like to admit. Instead of looking at the big number (my debt), I looked instead at the small number (minimum payment!).
Years passed, and before I knew it, I owed the bank more cash than I ever thought possible. It was a steep learning curve for me and could have easily been avoided if I had exercised some responsibility, restraint, and discipline.
What took me longer was understanding that credit cards weren’t evil by themselves, I just didn’t know how to use them.
That’s when I started to develop my Credit Commandments which helped to keep my credit card spending under control and proved that using credit cards is one of the best financial decisions I ever made.
Here’s my 3 Credit Card Commandments:
Credit Commandment #1
Naturally, my credit card felt more like an affliction rather than an asset once I realized how much debt was on it. Hiding from it, however, wasn’t going to make it go away. I had to face it, and understand what went wrong, and where.
This is the first commandment of credit cards: always pay your card in full every month. I learned this the hard way, as I always thought interest rates didn’t really amount to much.
My statements would show some small amount of money in interest on top of the bill. It always seemed negligible, until one day I sat down and performed a full audit of my credit card. Guess how much I paid in interest over ten years?
$8,550. This number will haunt me forever. That’s a year of rent, I thought to myself. Think about it. An entire year of rent.
After I finally managed to pay off my credit card debt, I never again let money sit on my credit card balance. I haven’t paid a cent of interest in years, because I always pay my card in full.
Credit Commandment #2
Annual fees suck. My first credit card had a $150 annual fee. Multiply that by the ten years I’d had the card for, and add the $8,550 in interest I paid, and that brought the tally up to a whopping $10,050 in fees alone. Why didn’t I anticipate this, you ask?
Well, the introductory offer to the card was amazing. Low credit scores accepted. No annual fee for the first year. $200 signup bonus.
I was 18 years old; a year still seemed like a long time, and $200 felt like a fortune! It only took me ten years to realize that the bank offering me the credit card didn’t care to make sure that I understood credit cards.
All they cared about was making sure I felt I was getting a good deal! You see, they want you to sign up for something you can’t pay back. That’s how they make money!
This brings us to the second commandment of credit cards: don’t tolerate fees, especially annual ones.
There are plenty of wonderful credit cards that come with zero annual fees, and offer plenty of rewards. There are great cards with annual fees too, but usually they won’t compute!
Credit Commandment #3
I was tempted to close my credit card after I finally paid it off. But I didn’t, and you know why? Because opening and closing credit cards will lower your credit score.
This is why the third commandment of credit cards is to keep your credit lines open. Managing money isn’t a sprint; it’s a marathon. Careers take time to build. Fortunes take time to build.
And as I displayed prior, nothing chips away at your money quite like recurring fees and interest rates. I could’ve had another $10K in my pocket, but I didn’t.
Even though I’ve paid off that awful credit card debt, I still have that credit card open to this day. When I applied for my house, my lender saw that I paid that card off in full, and kept the credit card open.
This made my score go way up, and qualified me for a much better mortgage. This improved loan, thanks to my credit card, has saved me tens of thousands of dollars. In turn, I got a way better loan with a much lower interest rate, because I can be trusted with money.
Money saved is money earned, and nothing will save you money like having an established history of credit. Closing cards virtually wipes that history out, and is not worth it.
Always keep your credit lines open.
Simply put, credit cards can work for you or against you. How you manage them will ultimately tell. Today, I put all of my expenses on my credit cards, and pay them off in full every month.
I never pay interest, and I get some of that money back in rewards. When it comes time for me to take a vacation, I have a pool of airline miles I can always tap into.
I never pay for flights anymore. What was once the priciest part of travel is now virtually free, because I put all of my expenses onto my credit card and refuse to pay interest.
Thanks to my credit commandments, I’m not drowning in monthly interest from my mortgage. It’s manageable and something that doesn’t force me to work day-in and day-out.
And thanks to credit card rewards programs, I’ve managed to make more than my $10,050 back. Through the careful application of these credit commandments, the world has opened up to me in ways it never would have otherwise.
May they bring you the same fortune.