Posts tagged: establishing_credit

Student Credit Cards. Your Millions Start Here.

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As members of the under 30 crowd one of the biggest topics we talk about is credit and debt. Our parents are, for the most part, baby boomers. Unfortunately that mean they are, for the most part, broke and up to their eyeballs in debt. That’s not a true statement in every case, but it’s the reality for a scary percentage of the over-50 set. A couple of years ago I read that only 1 out of 50 baby boomers are financially ready for a comfortable retirement. Yikes. I guess we better start making some serious money or our parents are going to be in a world of hurt.

Lots of people want to point the finger of blame at the credit card industry as America’s financial downfall. I agree they’re giving us the gun, but we’re the ones pointing it at our own foot and pulling the trigger not once, but several times (For insight into that analogy, google ‘bankruptcy statistics’. You’ll see what I mean.).

Young people should be establishing credit for themselves. Credit is a tool, nothing more. If we’re dumb we’ll use it poorly; if we’re smart we’ll use it to get rich. It’s that simple. If our club-wielding ancestors had given up on fire after they burned themselves the first time, where would we be?

I’ve heard a rumor that Bill Gates started Microsoft with his credit cards. True? I have no idea, but it makes for a good story. I do have a friend whose website made $100,000 in one month thanks to the advertising he was able to do with his credit cards. Without them he would only have been able to accomplish a tiny fraction of that success.

What does this mean for the rest of us? It means we have a few choices: 1) we can buy into the advertising and use our credit cards to buy lots of thing we can’t afford and don’t need, putting ourselves into a hole from which we may never emerge, 2) we can hide our heads in the sand with statements like “I don’t believe in credit cards.” or 3) we can educate ourselves, develop self-restraint, and use credit as a vehicle to help us get to our financial goals a lot more quickly.

Door #1 leads to great friendships with bankruptcy lawyers. Door #2 leads to, well, it leads to being very bored, but probably sleeping well at night. Door #3 probably leads to a few mistakes, but eventually it leads to financial independence.

Here’s how to avoid Door #1 while you’re in college. Open a couple of student credit cards, but keep the limits low. If you’re going to screw up and spend all the way to your limit a couple times, better to do it with a $500 limit and not a $5000 limit right?

Also, get in the habit of paying the balance every single month. If your credit card offers a program where they’ll pay your bill out of your checking account, use it! Anytime human beings can automate good habits into our lives we definitely should. If they don’t offer that program, your bank probably offers something similar through your online bill payer. Use it!

If you’ll get in the habit of paying your bill monthly you set yourself up to use your credit cards intelligently for the rest of your life. I love credit cards. I believe that, used with care, they are the best financial tool in the world today.