Be Brave Not Safe

There are a number of reasons why a young adult should acquire a (single) credit card:

• To begin establishing credit history (which will provide lower rates on loans and/or the ability to borrow at all, for a home, etc.)
• For “true” emergencies (i.e., my car broke down and I need to fix it so that I can get to work)
• To rent a car when traveling for business or pleasure (or if our car will be in the shop for an extended period of time)
• Etc.

For those considering dipping their toes into these waters, there are a number of factors to consider when determining which credit card / bank you will do business with.

Sharks (I mean credit card companies) have a number of teeth. Some, more than others.

For instance, a couple of teeth (I mean fees) to avoid related to credit cards include:

• Annual Fees – This is unnecessary, as there are no-fee credit cards available. Read carefully, as some will say (in small print) no annual fee for the first year. No, no, no – We don’t want an annual fee – ever! The reality is that, as much as the other benefits might be enticing, the annual fee (for year 2) will sneak up on us, and before we know it we’ve been bitten with the charge…
• Foreign Transaction Fees – If you travel outside the country (which is a LOT of fun) you’ll want to be able to use your credit card – without incurring extra fees. Many credit card companies add a fee to each transaction you make outside the country. If you do (or plan to do) any travel outside the country, you’ll want a card that doesn’t bite you with these…

Some benefits that credit card companies can provide, that you’ll want to look for / confirm, include:

• Cash Back – Receive a small % of cash back on purchases. In a prior post we covered how we can take advantage of shark tactics to earn “free money” via the disciplined use of a credit card assuming the complete payoff of the balance – EVERY MONTH. It actually feels good to be an “honest” shark 🙂
• Fraud Protection – If someone unlawfully uses your card (at some point, this WILL happen), most credit card companies will remove the transaction(s) from your balance. Make sure this is the case on the card / bank being considered.
• Auto Rental Liability Coverage
• Extended Warranties on purchases
• Etc.

Another feature that can be very enticing is the balance transfer option. That is, the ability to use your credit card to pay off other debt (i.e., loan, another credit card, etc.) for a lower (introductory period) interest rate. This “may” be a VERY good short term strategy to knock down the cost of debt. But, we MUST pay the balance off prior to the introductory rate expiring, or we will end up paying the extremely high percentage rate – outlined in the small print…

And, finally, an enticement that they may also include is 0% APR (no interest on outstanding balances) until a specific date in the not-to-distant future. To me, this doesn’t matter at all. Why? Because we are already paying off the balance EVERY SINGLE MONTH.

The shark tactics relate to the fact that the credit card companies are hoping that we’ll enjoy their card by buying some new clothes, shiny objects, taking a vacation, etc. Then, when it comes time to pay the bill, we will be unable to do so and they get to take their monthly bite (once the introductory period of 0% APR expires).

Don’t give the sharks the pleasure. Instead, bite back with the disciplined use of a cash back credit card 🙂

More to come!