By Lucas Counts
Credit can be incredibly useful when utilized well. But that’s the key: It needs to be utilized well. There are drawbacks to credit, as there are advantages. And it can be dangerous for those who don’t realize what they’re getting themselves into.
WIth that in mind, here’s a quick rundown of the pros and cons of credit:
Pros of credit
Plenty of entrepreneurs have utilized business loans to hit the ground running with their startups, homebuyers have been able to begin investing in property with mortgages, and many consumers see the fruits of 2% cashback and other perks on credit card purchases. In short, credit can be a useful resource.
While teens can apply for their own independent credit card only once they’ve turned 18, there are still plenty of credit cards — such as the Chase Freedom Unlimited, Citi Double Cash Card, and the Capital One Venture Rewards Credit Card, just to name a few — that you can qualify for as an authorized user, backed by a parent.
One of the benefits to using an authorized card, starting at 14 is that hypothetically if you use that card for the next four years while building your credit, by 18 you will be eligible for student credit cards, secured credit cards, and other options available for people new to credit.
Cons of credit
It turns out, credit can be an asset when managed well, yet debt still cripples the finances of many other Americans. Just behind the home mortgage as the leading debt in American households, credit card debt is a leading source of that debt.
Together, Americans owe a total of $841 billion on their credit cards.
The crucial tip: Make a credit plan!
Borrowing money, when done irresponsibly, can have massive repercussions, from getting left in the dust by a housing market that continues to surge up nationwide, to the negative effects of a poor credit score. That said, it is possible for a teen to use a credit card responsibly when done with a plan.
As with most everything, from preparing for a big sports game or performance, to starting a business or making decisions that will affect you for the rest of your life, taking action without a plan is essentially setting yourself up for failure.
“When you fail to plan, you plan to fail,” as Winston Churchill put it. Teens don’t often think ahead, or tend to make emotional decisions. With that in mind, here is the one crucial tip for teens who plan on using credit: Make a plan!
Constructing a plan for how you will use your credit card, whether that entails tracking all spending with a fancy budget, or simply making sure you cover your monthly payment, can be a hassle and sometimes a pain in the backside. But nothing worth having in life comes easy.
Having a plan around your credit card that fits your check and lifestyle is a gamechanger. It’s all about knowing where your money is going and making your money work for you. When you plan how you will handle your money, you set yourself up to be in control of a lot more than you realize– where you can live, what you can eat, splurge on, enjoy, conserve, and everything else in between.
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