Prelude:

It seems kind of silly now, but I always thought that getting my first Credit Card was a rite of passage of sorts. It was my first entry into the fantastic and terrifying world of OPM – Other People’s Money, and to say I felt a little unprepared would be an understatement of criminal proportions. It’s been said time and time again, but it really is a shame they don’t teach personal finance in school because responsible use of Credit is a necessary survival skill in the modern world. As well as Credit Cards, Car financing and Student loans (right up to ‘The Big M’) are other common types of Credit that every single one of us will have to deal with at some stage during our lives.

There is, of course, a most crucial difference between a mortgage and a credit card. Whilst a home loan typically consists of using credit at a very low interest rate to secure a carefully chosen, appreciating asset, a credit card is usually used on a whim to purchase things that will generally decrease in value, both in a monetary sense and in a more abstract, utilitarian sense (like the myriad of rusting exercise equipment that I used once and then banished to some dank, dark corner of my garage).

See, a Credit Card is kind of like a double edged sword. The ability to use Credit for virtually anything, anywhere and at any time has a powerful allure and is as dangerous as it is convenient. Without financial discipline, the results are often disastrous, and even the strongest willed of us succumbs to an occasional impulse buy.

The truly insidious thing about OPM is how it clouds your judgment. It seduces you, and you forget –if only for a moment - that every dollar you spend has to be repaid, on top of all the interest and fees you’ve managed to accumulate along the way. With that in mind, you need to ask yourself if a Credit Card is really right for you.

If you do decide to take the plunge, keep the following in mind:

• Spend on a budget: If you plan to use a credit card, you have to learn to budget. And no, this doesn’t consist of having a rough idea of how much you spend on Starbucks every week, it means drawing up a thorough and detailed list of your fixed and variable expenses.

• Stay disciplined: Remember, the convenience a credit card gives you is both its greatest strength and it’s most terrible weakness. Before you hand over your card for anything, be sure to ask yourself three questions: Do I really need this, Can I afford this and Will this bring me long-term happiness.

• Try to think 20 moves ahead: They say every great chess player can think at least 20 moves ahead. Never forget that every cent you spend today will have to be repaid at somewhere down the road. Consider the sacrifices you will eventually have to make to repay the original debt plus any interest charged along the way and make an informed, sensible decision.

• Watch your statements like a hawk: By law, your card issuer must send you a monthly invoice (or ‘statement’) detailing your recent purchases and repayments, what interest charges and fees you recently incurred, as well as the overall amount you currently owe. Sometimes the banks make ‘mistakes’ – don’t be the one who pays for them.

• Keep a paper trail: It’s simply good practice to keep ‘hard’ copies of all your purchases and repayments. They’ll come in hand for tax purposes and general accounting. You should also check them against your statements on a regular basis. Put all your receipts in a sturdy folder and keep it them in a safe place away from prying eyes.

• Pay everything off on time and in full: Sounds obvious, right? Yet this is how most people start getting themselves into trouble. Not paying your bills off on time and in full means interest charges, fees and lots and lots of debt.

• Be date-aware: Credit Cards love deadlines, and it’s crucial that you stay on top of them. You should always know well in advance when a bill is due or an introductory rate is going to expire. After all, they don’t call them deadlines for nothing.

Always remember that you’re playing with fire. OPM is intoxicating and dangerous. Let down your guard even once and boy will you regret it – take it from a recovering Credit addict. Failing to repay your Credit Card debts can have far-reaching consequences and may make obtaining other types of credit in the future very difficult if not impossible. Always pay your bills off on time, and if you can’t afford it, don’t buy it - if you only take one thing away from this article it should this.
Stay tuned for Part 2!