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Monday, January 23, 2023

Beginner's Guide to Credit Cards

There's a lot they don't teach in school. There's a lot everyone just expects you to know. Credit cards are not only something you should learn about, they are something you must learn about. Credit cards can be very hazardous to your financial health if you don't know what you're doing.

Drawbacks of Credit Cards

First of all, credit cards are dangerous! If you use them without paying off every cent when the statement comes due, you'll start paying interest and lose any benefit you might have gained. In the worst case, you'll wake up in life-crippling debt before you realize what's happening. I wish I could say I was exaggerating, but it happens every day to thousands of people.

Furthermore, the possible benefits to be gained from using credit cards are relatively small. Nobody gets rich on credit card rewards. The banks know that making a mistake can be costly, and the average person makes mistakes. They're counting on it. If you cannot be responsible, you should stay away from them completely.  Lots of people live perfectly normal lives without credit cards.  Just ask Dave Ramsey.  But if you can follow the rules to avoid paying interest, then there are a few benefits you can enjoy by funneling your spending through one or more credit cards. No matter what, start slow.

Benefits of Credit Cards

The main reason to get a credit card is for cashback. Merchants have to pay a small percentage of every sale they make to the credit cards (1-3% typically). Most merchants do not offer different prices for consumers paying with cash/debit and those paying with credit. So this fee often ends up in the price of things you buy. That's why banks can afford to pay you cashback for using their credit card, and it's why you should probably take advantage of it. You're already paying about 2% higher prices when you buy something at a convenience store, why not get that money back?

Some people travel a lot, and prefer to get points (or miles) instead of cashback. That's okay. You can usually stretch your  rewards much farther if you were going to spend money on travel anyway, since the travel rewards can only be used for eligible expenses but if you were already going to spend it anyway...

There are other benefits you can get, which vary from card to card:

 Cashflow delay. * Disputes. * Purchase protection. * Insurance for rental cars. = Recommended Cards for Beginners = Churning & Manufactured Spending