First Credit Card

Ideally, the credit card you choose should have the lowest fees, the lowest interest rate and provide the most benefits when you use it. Unfortunately, there is probably no card that has the best of all three. Choosing the card that is right for you involves weighing these factors and considering how you will use it.

Annual fees can vary from zero to $75 per year. Ideally, you would want to choose a card with no annual fee. There are also fees that companies charge for late payments. Be sure to check the terms of the credit card agreement, especially if you are occasionally late with a monthly payment.

Interest rates can also vary greatly and can exceed 20%. You should also be very careful of low "teaser" rates, or special rates for a limited time if you transfer balances from another card. Another way credit card companies increase the amount you pay is by how they calculate the interest. Be sure to read the details of the agreement.

Many cards offer benefits for using the card. Using a credit card can bring the rewards of airline mileage, discounts on travel, electronic gifts, discounts on cars and other benefits. A rule of thumb is that the benefits are usually worth about 1% of the charges. If a card with these types of benefits is important, make sure the benefits are those you will use and that the other aspects of the card do not offset the benefits.

Guidelines for using your credit card

1. A credit card is serious business. The issuing company is lending you money and you have responsibilities to pay it back. 
2. One card is probably enough when you’re just starting out. Avoid the temptation to open a lot of different credit cards by only having one card.
3. Keep the credit limit low. Depending on how you are going to use it, $500 or $1000 is high enough for most first-time credit card users. 
4. Pay off the entire balance each month. Avoid charges and build a good credit record. 
5. Make the payments on time. This helps build a good record and avoids late payment charges. 
6. Use the card only for emergencies. Start off slowly with this new convenience. Keep using cash and checks for most purchases, especially until you get comfortable with the card. 
7. Never let others use your credit card. You are responsible for all charges on your card. Do not let others borrow it or give out the number.
8. Keep track of your use of the card and compare your records to what shows up on the monthly statement. 
9. Keep the card active. Even if you are only using the card for emergencies, use it for small purchases every three or four months just to keep it active. Then be sure to pay off the balance before any interest is due. 
10. Avoid using the card for cash advances. The interest rate charged for advances is usually higher and interest begins accruing as soon as the advance is made. 
11. Create a spending and budget plan. Do not let your credit card payments exceed 20% of your monthly income.
12. If having a credit card turns out to be a problem, get rid of it or stop using it for a while.

Pay More Than The Monthly Minimum On Your Credit Card
Each credit card statement you receive includes a “minimum payment” amount along with transaction, balance and interest rate information. Depending on other parts of your financial situation and your spending habits, the temptation to pay only the minimum can be great. As tempting as it may be, you should always try to pay more.

Credit card companies usually calculate the monthly minimum payment due as a percentage of your outstanding balance. The percentage is usually more than the interest rate they are charging on your balance, but low enough to make the minimum payment amount seem attractive. After all, they make money by charging interest on what you owe.

The Cost of Paying Only the Minimum 

As you consider how much to pay each month, be sure you understand how all the numbers work. To keep it relatively simple, let us assume you have an outstanding balance of $5000, the annual interest rate being charged is 12% (1% per month) and the minimum payment is 2% of your outstanding balance. If you just pay the minimum of 2% ($100) and have no additional charges, $50 of the payment goes to pay the interest and your balance is paid down to $4950. If you continued on that schedule, it would take you 299 months (almost 25 years) to pay off the balance. On the other hand, if you paid $250 each month, you would have the balance paid off in about 23 months.

As a practical matter, unless you stop using a card each month you will have additional charges, interest will be charged and you can decide how much over the minimum you wish to pay. Paying more than the monthly minimum will eliminate the balance much faster, save you considerable interest charges and provide some peace of mind knowing you are taking a prudent action.

Pay More Than the Minimum 

Here are five ideas for finding cash to make the payments and reducing your credit card balance faster:

1. Stop using the credit card. This simple idea will result in more of your payment being used to reduce a balance that is not growing due to usage.
2. Use cash for more of your purchases. Fewer monthly charges will bring you balance down faster.
3. Consider using some of your savings to pay down the balance. The rate you are earning on your savings is probably much less that what you are being charged on your balance. While no one likes the idea of depleting savings, if you can reduce your expense (interest charged) by more than your income (interest received), you will end up ahead.
4. Consider some other type of loan. The interest rates charged on home equity loans, mortgages and even auto loans would probably be less than what is charged on your credit card.
5. Cut back on your total spending. Conserving some cash, even for just a few months, and using it to make larger credit card payments can make a difference. It may even develop into a good habit.

 How soon can I eliminate my debts?