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New to Credit Cards? Learn How to Use Them Responsibly and Avoid Debt

By: American Heritage08.01.19
Young man paying with a credit card

If you just got your first credit card, or soon will, you have probably heard that credit card debt is a major risk to avoid. While that is true, you shouldn’t be afraid to properly use your credit card. The fact is that like most tools, credit cards can be helpful when used responsibly and can lead to problems when used irresponsibly.

Learning to be smart with credit cards is an important part of adulthood. Make it easier by learning good credit and spending habits now, rather than trying to break bad habits later.



When used responsibly, credit cards can:

  • Offer a convenient alternative to cash that is accepted practically everywhere you shop
  • Help protect you from theft and fraud
  • Be an important resource for emergency expenses
  • Help you improve your credit score and access important financial opportunities later
  • Simplify budgeting and help you keep track of spending
  • Earn rewards while making purchases



Using your card wisely can result in more freedom and financial opportunity over time. On the other hand, relying too heavily on your credit card and failing to pay down your balances can be a major cause of stress and financial hardship.

Consider this example to see how credit card debt can snowball.

Let’s say you charge $3,000 and only make the minimum credit card payment of $25 each month. At this rate, and with a 17% APR accruing on your unpaid balances, it will take more than a decade to pay off this balance. Plus, you will pay more than $2,200 in finance charges – nearly the amount you borrowed in the first place.

By taking steps to pay all or most of your card balances each month, you will avoid whopping finance charge payments and have more money to save or put toward important goals.



Do you know the difference between responsible and irresponsible credit card use? Savvy credit card users do the following:


Make Payments on Time

Your credit card bill will be due the same day every month. Failing to make your credit card payment on time leads to late fees, interest on unpaid balances, and damage to your credit.


Pay Off the Entire Balance

According to Experian, almost half of credit card holders pay their entire bill each month, rather than carrying a balance. That’s the way to go because when you carry a balance, interest can add up quickly.

If you can’t afford to pay your whole bill, pay as much of it as you can for now, and pay the rest of it off as soon as possible. Some cardholders find it helpful to make multiple credit card payments each month to keep their balance low.


Spend Well Below Your Limit

When you are approved for a credit card, you will be given a credit limit. This limit may be a few hundred dollars or thousands. It may start low and increase over time. It is important to know that just because you are allowed to spend a certain amount does not mean you should. Spending more than you can afford to pay off can result in you paying a lot of interest.

Also, credit-rating agencies keep an eye on your credit utilization rate (the ratio of how much you charge to how much you are allowed to borrow), and depending too heavily on credit can hurt your credit score. Spend no more than 30% of your card’s limit (less than 10% is even better).



Taking these actions can help you enjoy the benefits of credit cards while avoiding the pitfalls:


Have a Budget

Creating a budget and sticking to it can help you understand where your money is going, when it is OK to splurge a little bit, and when you need to hold back. If this is your first credit card and you’re simply looking to build credit, consider using your card only for a few monthly bills (like your phone bill) and using your debit card for day-to-day purchases.


Set up eStatements or Automatic Payments

It’s easy to forget when your credit card bill is due and whether you paid it or not. Start receiving your bill electronically so you will never miss a credit card payment (and pay a late fee). Or, save time and hassle by setting up automatic credit card payments from your checking account every month.


Ask for Help if You Need It

Making a wrong financial move does not mean you are doomed to a life of credit card debt. Ask financially responsible family members, friends, or mentors for guidance. You can also reach out to professionals at your financial institution for help with debt consolidation and free resources to help you get out of credit card debt.


Get a Great Card From a Partner You Can Trust

All credit cards are not created equal. Look for a card with a low rate that makes things more affordable if you need to briefly carry a balance. Here at American Heritage Credit Union, we have a variety of low-interest credit card options offering everyday convenience and valuable rewards. Reach out to our team to choose the option that right for you, or apply online today.  



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