Disclaimer: I am not a financial professional. The following advice is presented from my own personal experience as a working student on a budget trying to live as financially sound as possible.
During this economic recovery, it’s hard to know which financial decisions are the best ones. Managing money can be a daunting task, and when you make relatively little, it can seem like a pointless endeavor. Even more so, having a credit card may seem foolish, especially since the notion of “Debt: The American Way,” contributed to the nation’s economy collapsing in on itself and left millions of Americans facing foreclosures and filing for bankruptcy.
Most of us who feel that we are scraping by and living on pennies could cut a few things out to free up some cash for savings. Do you really need that smart phone and the monthly data plan that comes with it? Probably not. Could you get by taking the bus instead of filling your tank every week? Maybe. When you don’t make very much money, keeping track of necessary spending and accounting for every penny will only work to your advantage. If you need help getting started, websites like mint.com and geezo.com help users make a budget and keep track of their spending in real time.
A credit score sounds like the kind of thing only people your parents age are concerned with, but believe me, if you don’t have one yet, you will soon and it is worth it to give your score some attention. Having decent credit is the key to making larger purchases that can help you move closer towards your goals in life, such as a dependable car or an affordable home. Good credit can also enable you to take out a small business loan if you are the entrepreneurial type. Even if you are the most grass roots, live simply and live in the moment type of person, you will not be immune to the way the world works, and if you ever hope to own anything (and don’t have the available funds to pay in full), a good credit score is magical key. You can check your score once a year for free, or pay around $20 for a report from any of the three bureaus, which I recommend doing every few months. If you have any long unpaid bills, they will most likely show up on your report and this will lower your score. If this is the case, make immediate arrangements to pay off the bill, and once it is paid your score will rise significantly. Also, if you are adding to your student loan debt with each passing semester, it is essential to have other lines of positive credit showing up on your credit report. This means credit cards.
The key to having a credit card work to your advantage is to start very, very small. Signing up for a card with a $300 limit will teach you how to manage it and will prevent you from getting into a deep financial hole if you max it out. Use the card as part of your essential spending: pay your utility bills, buy groceries, put gas in your car. Each time you use the card, log into your account and pay on the purchase. If you find yourself in a position were you spent a little more than you can pay on, don’t panic. Just pay as much as you can. Carrying a small balance on your card is okay. Experian, a credit reporting company, recommends having a balance of thirty percent or less of your credit limit.
A good way to ensure that you always have a good balance is to call your credit card company and request that your payment date be as close to your payday as possible. This way, you can put as much of your paycheck towards your card as you need, and then use the funds you need as soon as your balance is reported, without too much time in between.
Managing a credit card takes more thought than strictly using cash, but you will be grateful for the small amount of time and thought you put towards it when you are approved for a car payment that isn’t as much as your rent, or when you are able to get a loan for the Mac Book Pro you need to replace your 10-year-old Asus laptop that suddenly died on you. All of this isn’t to say that I am advocating debt. I am advocating debt management, which is essential for those of us who don’t yet earn enough to make some essential purchases in full. Organizing your finances only takes a few minutes out of your day, and starting now can only help you develop habits that will lead you establish financial literacy and independence for life.