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Double-edged Credit cards can be your best friend or your worst enemy. I know
this too well. When I got my first credit cards in my early twenties, I
plastic.
went bananas. I bought booze for my friends, took my girlfriend to
five-star restaurants, used cash advances to gamble in Vegas, and
even rented airplanes to take flying lessons.
As long as you pay off all charges every month, credit cards
don’t have to cost a dime, and can even make you money.
This Guide will walk you through choosing and using the best
credit card for your spending style. No credit history? No problem,
I’ll cover that. I’ll show you how to negotiate with your credit card
company to get things like a higher credit limit, lower interest rate,
or a late fee removed. Finally, I’ll show you how the credit cards
you open can help your credit score…if you do things right.
Best,
Yes No
Yes No
Yes No
Yes No
On average, do you spend more than $1,500 a month on your credit card?
Yes No
Cash Travel
Cash Travel
Some Exceptions
The above cards are excellent picks for 90% of people. Most other cards, like those below, are
marketed heavily to certain demographics. For some, they’re excellent choices, but for many
people they’re a rotten deal.
Loyalty airline and hotel credit cards are often deals but only if you frequent a particular airline
or hotel. For example, the Delta Platinum card’s $150 annual fee is steep, but it comes with
perks like a free companion ticket and free checked bags. If you check a bag on three
roundtrips a year, the annual fee pays for itself. If you never fly Delta, this is a card with a high
annual fee, a high APR, and mediocre rewards.
Charge Cards
If you don’t like the idea of being able to charge more than you can afford to pay off, you might
want to consider an American Express charge card. I used one for years. They have annual
fees, but give you greater financial control. For most users, the American Express® Premier
Rewards Gold Card is the best value.
If you’re a full-time student, many credit cards may not approve you because you don’t yet have
income. Student credit cards are the solution. The terms and credit limits aren’t as generous as
with other cards, but get you started building credit and learning to manage credit responsibly.
For Beginners: If credit cards mystify you---for example, you don’t understand
what a finance charge is and how it’s calculated---this section is for
How Credit Cards
you. Read it carefully. Otherwise, you can skip it.
Work
How Credit Cards Work
When you use a debit card to pay for a cup of $2 coffee, the coffee
shop swipes your card and their computer connects to Visa which
connects to you bank and asks: “Does Nicole have $2 in her
account?” If the answer is yes, the sale is approved. If the answer
is no, the sale is either declined—or, if you have overdraft
protection---the sale is approved and your bank charges you a big
fee because you didn’t have the money in your account.
That’s debit. With a debit card, you can spend whatever money
you have in a checking account. With a credit card, you can spend
up to your credit limit---the amount the bank decides it will lend
you.
So when you use a credit card to pay for that same $2 cup of
coffee, the coffee shop swipes your card and their computer
connects to Visa which connects to you bank and asks: “Does
Nicole have $2 of available credit?”
After the sale, you walk away with your coffee and the shop gets
paid $2 minus fees taken out by your bank, Visa, and the company
that processed the payment.
If you paid with a debit card, your bank takes the money out of your
account and that’s that. But if you have a credit card, you’ll get a
bill at the end of the month for the $2 coffee and whatever else you
bought.
Let’s say you spent $200 on your credit card this month. You get a
bill for $200. The bill will say something like “Balance: $200, Min.
Payment: $15.”
You can pay the credit card company the $200 all at once. This is
the smart thing to do. As long as you do this, using your credit card
is free. In fact, they may even give you $2 back (1%) in rewards for
using their card. The credit card company doesn’t make much
money from you, but they’re still happy to let you use their card
because they get a tiny percentage from the stores every time you
pay with the card.
What the credit card company really hopes you’ll do is to pay less
than $200. Maybe you’re short on cash, so you’ll only pay $15. As
long as you pay on time, you avoid any late charges and you
continue to build good credit for paying on time. But, now the credit
card company can charge you interest on the remaining balance
on your card ($200 - $15 = $185.)
These finance charges are not big amounts, so it’s easy to shrug
them off in the beginning. What happens, however, is when you
continue this for long enough you can end up with a $5,000 and be
paying $1,000 in interest. (At the bottom of my debt spiral, I owed
about $40,000 to credit card companies and was paying over $600
a month just in interest).
About that 29.99% You don’t know what you might get until you ask. I’ve successfully
called my credit card companies to remove late fees, lower my
APR…
interest rate, and increase my credit limit on numerous occasions.
You can do the same thing, but you have to call. (Remember that
old saying that 80% of success is just showing up?”)
BANK REP: Thank you for calling ABC Bank. How may
I help you today Mr. Customer?
Some Notes
BANK REP: Thank you for calling ABC Bank. How may
I help you today Mr. Customer?
elsewhere unless you really mean it. The reps hear this all the time
and, depending on how profitable you are, they may not care if you
do.
You have had the card for at least six months and have not
received a limit increase in at least six months.
BANK REP: Thank you for calling ABC Bank. How may
I help you today Mr. Customer?
Credit-Savvy Tip
Swipe Now, Save A good credit score is so important because if you decide to
borrow money to buy a car, you’ll pay thousands less in interest if
Later
you have a good credit score. On a home loan, somebody with
excellent credit can save more than $100,000 over somebody with
so-so credit.
One of the best ways to build and maintain a good credit score is
to use your credit cards properly.
Wrapping Up
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