To avoid debt, give your credit your respect and attention

Opening Credits columnist Eric Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for

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Question for the expert

Dear Opening Credits,
I've just gotten my first credit card, and it freaks me out a little bit. My parents had bad credit card debt and so does my sister. I'm scared that it'll happen to me because I just don't know that much about money and stuff. If you had one piece of advice that you could give me about getting a card, what would it be? -- McKenna

Answer for the expert

Dear McKenna,
You have some justifiable concerns. When the major players in your life share their negative experiences with credit, it's only natural to become spooked. I wouldn't be surprised if you've also heard horror stories from friends or from the news, all of which would only add to your skittishness.

Because of this, I'm glad you wrote. The truth is, McKenna, that while overwhelming debt is a real crisis for many, if you charge right -- and I'll get to how to do that in a moment -- you have absolutely nothing to fear. That card is not going to leap out of your wallet on its own and run amok at the mall. Consider credit a practical instrument in your financial toolbox: safe, useful, handy -- and only hazardous when misused.

My overriding advice for you regarding this is to give credit your respect and attention. How? Follow these steps and you'll avoid all those troubles you've been hearing so much about.

  1. Develop a livable budget. Nothing fancy needed, just list of all of your monthly bills and add in a regular savings goal. Subtract the total from your monthly income to see where you stand. If you've got excess cash, increase savings; if there isn't enough to go around, earn more or spend less. When you adhere to a plan that includes money set aside for the unexpected, you won't be tempted to charge your way out of an emergency.
  2. Safeguard your plastic. Always know where your card is, and keep all account information in a safe place in your home. Never lend the card to friends or leave it or the statements around for anyone else to see or take. This is your financial life, and it is your responsibility to protect it against theft and misuse. 
  3. Hold no debt. Only charge what you will pay in full by the time the bill comes due. If you want to finance a large purchase, spread the purchase price out over no more than a few months. The bank will charge interest on the rolled-over balance, which will increase the cost of the item, so know what it will be before making that decision.
  4. Limit credit inquires. You have one account now, and until you can demonstrate charging proficiency, stick with it. Most people don't need more than a couple of cards. When you're ready for another, apply prudently. With each application, an inquiry will show up on your credit report, and too many will negatively affect your credit score (which is used by lenders and others to assess risk).
  5. Pay on time. Never pay late or skip a billing cycle. Not only will you avoid paying an expensive late fee, you'll also establish a strong, consistent payment pattern -- the weightiest factor in a credit scoring model. It just makes sense. If you were to lend someone money, evidence of reliability would be the primary quality you'd be looking for as well, right?
  6. Be organized. Remember my initial advice about giving credit your respect and attention? Good. Credit is not a "set it and forget it" world. As a cardholder, you must constantly be on top of your accounts, and that takes organization. Scan your statements thoroughly, set up bill pay with your bank and address any problems immediately.
  7. Monitor your credit reports. Forget about those jingly commercials. You don't need to hire a pricey service. Just get your free reports once a year and read them carefully for accuracy. It's easy. Mark it on your calendar and do it.

Finally, learn as much as you can about personal finance and credit from credible sources. Do not take other people's word as fact. They may be right, but -- well -- they may also be wrong, and there is no reason to scare yourself silly based on someone else's mistakes.

See related: Credit card terms that first-time card users must know, Credit Card Help: The basic fundamentals of credit cards, Credit Card Help: 8 things you must know about credit card debt, Credit Card Help: 10 ways students can build good credit, Credit Card Help: 10 things you must know about ID theft

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Updated: 11-25-2017