If you live in the USA, credit cards are a good way of building up your credit. Financial experts encourage you to get a credit card, make small purchases using that card, and pay off the bill at the end of the month. This establishes a history of paying off bills on time and helps to increase your credit score. But what happens if you are unable to pay off the bill at the end of the month?
As a young woman starting out, you may not always have the ready cash available to pay off the bill at the end of the month due to several reasons. For example, you may be in school and your rusty old car breaks down. You need the car to get to and from work so you cannot ignore the problem. Your mechanic tells you that you need $400 to fix it, but you do not have that kind of money just lying around, so you use your credit card. Your problem has been temporarily solved. But at the end of the month you realize that you still don't have that $400 available to pay off the bill from your credit card, so you decide to make the minimum payment required on your card. The problem with credit cards is that they very often have high interest rates so by paying only the minimum required on your card, with time, you will end up owing far more money than you actually spent. And the more debt you build up on your credit card (for example, other situations come up, such as having to buy a plane ticket home that you again have to use your credit card for), the higher your minimum payment per month, the lower your credit score, and the deeper the hole you are digging for yourself. Before you know it, your credit card will be maxed out, your credit score will be lower, and by paying only the minimum required per month, you will likely be paying on your card(s) for the next 20 years or so. If you have a student loan in addition to your credit card bills, this simply increases the pressure on your resources, especially since your first job out of school is likely to not pay very well (unless you're one of the few lucky ones out there).
From my personal experiences with credit cards, and the experiences of my friends, here are a few pointers about how to not get yourself into credit card debt:
1. Do not use your credit card for non-emergency purchases such as clothing, shoes, books, eating out, etc. If you do not have the money to pay for these items, do not buy them. With regards to textbooks, check to see if your library has the book you need and then borrow it if you can, or try to find a used copy online or from another student. I know that textbooks can be very expensive, and sometimes you absolutely need your own copy, but make sure that you have exhausted all cheaper options before you resort to using your credit card. As for clothing and shoes, if you do not have the money to pay for them outright, then you do not need them. Period.
2. If you have an emergency and you are forced to use your credit card, tighten your budget for the next month or two (or three - however long it takes) so that you can save the extra money to pay off the bill by paying a little more than the minimum payment each month. Trust me, the longer it takes for you to pay off the bill, the more you will pay because of the interest that will be added to your principal each month.
3. Always pay your bill on time to avoid late fees, which are simply another drain on your limited resources, not to mention a dent in your credit score. A lower credit score means that everything is more expensive for you - for example, you will pay more for car insurance if you have a history of not paying your bills on time.
4. Do not be afraid to ask for help. We are Africans, and just as others can ask you for help, you should learn to do the same. If you have an emergency, ask a family member, good friend, fellow Church member, etc if they can help. I know how difficult it is to ask others for money (shame, wanting to be independent, etc.), and it is important that you do not make a habit of this (lest you gain a reputation), but if you truly have an emergency, it maybe wiser to borrow the money from a trusted source than to put it on your credit card, as your trusted source will likely not add interest to the amount you owe them. If you do borrow from someone, make sure you pay them back at the time you promise to do so. That way, the next time you ask for help, people know that you are reliable, and will not simply take advantage of them. If you are not sure when you can pay them back, be very honest about this. That way, if they do decide to lend you the money, they are fully informed. But again, do not make a habit of asking people for money. This advice is for absolute emergencies only! Try to plan ahead by saving your money so that when the unexpected happens, you are prepared. Check out this blog post on how to spend wisely and save effectively.
Remember that no situation is permanent. Just because you do not have money now, does not mean that you will always be broke. I know that money problems can hurt your self-esteem and destroy your peace of mind. However, if you work hard, things WILL turn around. So the next time you see other women wearing the latest fashions while you trudge around in outfits that are at least three years old, or the next time your friends invite you out to eat at an expensive restaurant you know you cannot afford, just remember that your time is coming. I know many young women who owe over $20,000 in credit card debt, and the strain has been very difficult for them. Every cent they make goes to credit card companies. Whatever they have left over goes to student loans, and living expenses such as rent, utilities, etc. At the end of the month, there is nothing left to save. They live from paycheck to paycheck. If they lost their jobs today, they would be in very big trouble. You do not want that to be you.
Nothing feels as good as being debt free.
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