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0Being in your twenties is an exciting time. This is the time when life really opens up and you can start doing all of the cool things you’ve always wanted to do. You can drive a car, and maybe even own your own, you can work a part time job, apply for a credit card, and really so much more.
Aside from one set back….you probably don’t have a lot of money in your early 20s. You haven’t been a part of the working world for very long at this point, and likely only have a minimum wage job. If you’re in college your working hours are probably limited as well. Money is tight and hard to come by at this time in life.
Unless….you get a credit card. Or so you may think. I know that’s the way I was thinking in my early 20’s.
I was taking full time community college courses while also working 36-40 hours per week at my local Dunkin Donuts. So of course, I didn’t have the funding to support the “fun things” I wanted to so as well as pay for college and my other various bills.
No, I definitely didn’t go absolutely wild and rack up 10s of thousands of dollars of credit card debt, but over those few years I did let my balance go beyond what I could comfortably manage. And was left with about 15-18 thousand dollars on my credit cards. Each accumulating hundreds of dollars of interest from one month to the next. Some months the interest charge was more than I was able to pay down in a monthly payment.
So I’m sure you can see why this wasn’t my best move as a twenty-something young adult. To this day I am still recovering my finances, but am definitely on the better side of things now. I have learned how to get on top of my debt, get a head with my finances, and most importantly, pay myself first.
Here, I want to share with you a few of the credit card mistakes that I made along the way, as well as what I have learned from these mistakes.
Not Setting a Spending/Balance Limit for My Credit Card
The average credit line for a first time applicant is between $500 and $1,000 as of today. When I got my first credit card my initial limit was $1,200. For the first year I did a really good job about only spending what I could pay off right away. Or at least by my next paycheck.
After that year I became too comfortable with swiping that card, and began to adopt a poor mindset of being okay with “future me” worrying about the balance. I’ll talk more about those points later.
Right now, I want to talk about how I shouldn’t have let myself go by the limit that the bank set for my line of credit. I should have determined my own spending limit that I could afford and manage comfortably.
Banks WANT you to spend money with your credit card. The credit limit that you are approved of may be “based on your income”, per the application. But in reality they want you to have fun with that card and rack up some debt so they can start charging you interest and make some money off of your poor spending choices.
How to Set a Credit Card Spending Limit
Now you may be wondering how to set a limit on your spending with your credit card. In my experience, there’s no set equation on how to determine a spending limit that is right for you. I’m not ay sort of certified financial specialist. I’m just speaking from my own, uncertified experiences in life.
When I finally came to my senses and decided it was time to limit my credit card spending, I took some time to write out all of my weekly/monthly expenses and tallied those up. The credit card that I started with, and still actually have to this day, had a decent cash-back reward system for spending. Meaning, I would get a certain percentage of cash back on every purchase I made with my credit card.
With that in mind, I set my self a spending limit based on what I would need to spend money on each month as it was. Gas, groceries, and various bills that were able to be paid with a credit card. Expenses that I was already budgeting for with the money I made in my paycheck each week.
I limited any “frivolous” spending to only things that I could afford to pay off with money that I had available in my debit account right then and there. I’m not saying you shouldn’t treat yourself with little frivolousness once in a while. Life’s too short not to!
What I am saying, is show your future self little mercy and consider the mess you may be making for the you of 2 to 3 years from that moment if you don’t keep your spending in check.
Letting My Credit Card Balance Get Out of Hand
I knew when it was happening. My mom is a credit manager by trade. Meaning, growing up I was informally trained in how to budget wisely, and manage credit and debt. At least on a personal level.
This ties into another point that I will be making soon about mind set. But the thing is, I could see that my balance was growing beyond what I could afford to pay down and I still continued to let it grow. It’s like letting your dirty laundry pile up. You can see the problem and know what to do to manage it, but you put it off until wayyyy later. Because who wants to deal with that much laundry??
My version of “out of hand” may also be different than yours. I define “out of hand” as only being able to afford to pay the monthly minimum credit card payment, while still allowing your credit card balance to grow from one month to the next. I was making negative progress in trying to pay off my credit card balances at this point.
Not Paying Closer Attention to Credit Card Interest
After some time of living with this high, nearly unmanageable credit card balance, I began to have a bad habit of not checking how much interest I was actually paying on this card. I knew what my interest rate was when I opened the credit line, but what I didn’t know was that…
When I would or wouldn’t be charged interest and that my interest rate could change periodically based on several factors. Some of which were in my control and others that were not.
It took several months, maybe a year, for me to really catch on to these things. I really did go into this whole credit card thing on a very ignorant level. Which is why I wanted to share these mistakes with you so that hopefully you won’t make them as well.
Now that I know better, I am more aware of the interest rates on each of my credit cards (currently, I have 3 with outstanding balances), and how to avoid paying interest on them.
Opening too Many Credit Cards
As I mentioned in the last section, I have 3 credit cards with balances currently. In total, I have 4 credit lines open.
All of which I actually opened for a purpose that wasn’t to spend more money.
I didn’t max out any of my cards and decide open another to create more spending room. I wasn’t THAT irresponsible.
Actually, my 3rd and 4th cards were opened strictly for the purpose of balance transfers so that I could avoid paying interest on higher balances that I was having trouble managing. Now, I take advantage of these different credit lines and different promotional offers that they give me for “being such a loyal customer” or what ever.
There are definitely some pros and cons to having several credit cards, which is something I will cover in another post. The con that I want to cover here, is that now that I have all of these cards open, closing any one of them once I pay off the balance will likely do more harm than good to my credit for multiple reasons.
By eliminating a portion of my over all credit available, my debt to credit ratio will be negatively impacted if I close a credit card account while still working on paying off another credit card. Credit bureaus look at how much available credit you have versus how much debt you have. A smaller credit line will make the debt look bigger, proportionally.
Now, I have to wait until a good portion of my credit card debt is repaid before I close out a credit card or two. Once they are paid off, having a credit card with a zero balance isn’t necessarily a problem. But still, if I don’t need it anymore I’d rather get rid of it once I’m able to!
Having the Wrong Mindset About Paying My Credit Card Off
I alluded to this point earlier on when I talked about “future me”. This is a poor mindset habit that I’ve noticed that comes up with other things in my life other than my credit card management. Such as putting away the laundry that I just took the time to fold. “Eh, I can do that later on.
I want to do the thing that provides instant gratification right now, instead.” Once again, handing off a not so fun load to future Kate and choosing to do the thing that I could have maybe done later on, or not at all at that time.
Recently, I began to think more about “future me”, and how I don’t want to be fighting this balance for years to come. How I am the future me that past me though would take care of this problem for me. Way back then when I created the whole mess.
There are several mind sets that I like to refer to when it comes to life choices, but in the case of paying of credit card debt, this is my mind set; Stop leaving your debt for “future you” to deal with. If we learned nothing from the 2020 pandemic, the future we think we are walking into may not be what we expect it to be. So take care of future you, and take care of the difficult things and make the right financial choices 0
now, in the present.
Do you have multiple credit cards and find them easy to manage? Tell me how you juggle your credit cards, either your struggles or the advantages you find with having multiple credit cards in the comments below.
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