A recent survey indicates that just 61 percent of millennials have at least one credit card. This makes some sense given that new laws about marketing credit to people under the age of 21 have gone into effect in recent years. But now that most millennials are in their young adulthood, we should expect to see those number rise in the coming years. At least I hope so!
Credit cards get a bad name and it’s not entirely undeserved. Some credit is designed to get people caught up in a never ending cycle of borrowing and repayment. We all know someone buried in debt, with little hope of ever digging their way out. Having grown up in the post-Recession world, many millennials are paranoid about taking on debt of any kind.
The thing is, some debt is necessary to build the kind of financial life that most of the readers of this post will want to have. One of the best ways to move in this direction is to have one or more credit cards. Doing so can help you in the following ways.
1. You need credit to borrow money in real life situations. There are some financial advisers in pop culture (who will remain unnamed) who recommend that their listeners never get a credit card at all. Instead, these talking heads talk about the power of cash and spin stories about buying new cars with briefcases of big bills. Almost nobody can live out this fantasy. Most of us start with very little money and very little income. To make necessary purchases in life (a car, a house, a business expense), we’ll have to borrow.
Unless we’ve demonstrated to creditors that we have the ability to pay our debts back responsibly, we’ll be unlikely to find a lender to give us money. Those that do give us a loan will likely charge us very high interest rates, just in case we don’t pay back the loan. After all, we have no credit history to show that we’re honest and trustworthy with borrowed money. A credit card is a simple way to show that you can handle a little bit of credit. You don’t have to spend more money just because you have a credit card. Open the account, use it, pay it off quickly, never carry a balance if you can help it and you’ll start to build immaculate credit which will result in cheaper money for those times when you absolutely need to borrow.
2. A credit card gives you another way to approach spending. While it’s important to spend less than you earn, there are times in life when you’ll need to spend on credit. Maybe you work for yourself and you’re waiting for an invoice to be filled, but you’ve got to pay your electric bill. Maybe you need to reserve some money in your bank account while you cover an unusual purchase with your credit card.
Furthermore, there will come a time when you’ll have an emergency you need to cover (you’re broken down on the side of the road, you need to change your flight at the airport, you need to break up your emergency room bill into a few monthly payments rather than a lump sum). Personal finance can get complex and anyone serious about it has found times when a credit card comes in handy. You should always pay off a balance as fast as possible, but there are some times in life when a credit card is indispensable. If you have a solid emergency fund in place, this plays really well with the convenience of credit card spending.
3. Credit cards give you rewards when you use them. Credit card companies like when you use their product. It’s how they make their money, so the more you spend, the better for them. This is why they provide rewards for big users. Rewards have been known to ensnare people in debt cycles, but if you use a credit card for necessary purchases, then pay it off with cash, you can get all the benefits of good rewards with none of the downsides. For people who like to travel internationally, like to eat at awesome restaurants, or enjoy seeing sporting events in person, this is a great method to take advantage of the best perks. Do some research about a credit card that kicks off rewards for stuff you’re interested in. This might be a good first card for you.
You don’t have to use a credit card even if you open up an account. Simply having a credit account open for a long time works wonders for your credit score. So, at the very least, simply open up a single credit card, put it in a box and never think about it again.
Secured credit cards are another way to open up a first credit account without fear of going into debt. Whatever you choose, having a credit card that you don’t use is better than nothing. Read up, sign up and enjoy the benefits of your own credit card. It’s part of being an adult and it’ll help you a lot in the future if you use it right.