The summer prior to my first year at college I was mostly hanging out until dorms opened up. One day I got a call on the phone from a banker asking if I would like a credit card. My first reaction thought was, "Hmm, why would I need a credit card?". He must have sensed this because he started talking about all of the things you could buy with one, the financial freedom I would have, and how it was such a great offer because it would help me establish a credit history. So I said yes, without ever discussing credit limits, minimum payments, interest rates, or late payment fees.
I promptly got the card in the mail a few days later. When I held it in my hand I had a huge rush of adrenalin - wow, I had a credit card. I had power now. Adults have credit cards - that means I'm an adult now! I started using it immediately.
After a few months the adrenalin of the credit card had worn off and I started looking at the details of the card. The interest rate was 12% with a cash advance and wire interest rate of 30%. The interest rate would also jump to 30% if I made any payments late along with a $20 minimum late fee. I suddenly realized how easy it was to mess up using the credit card and promptly stopped using it..for a time.
About a year and a half after I got the card I started using it again. But this time I told myself that as long as I made it a point to make the payments in full on time, I would be just fine. But sure enough, I missed a payment by a day, and it cost me $20. Then I missed another, and another, and another..and I had just about had it with the card and I was about to cut it up. Then I saw an ad one day for a rewards program I could sign up for with the card. So I signed up for it thinking that I would be able to earn a substantial amount of money in rewards that I could use when I graduated college.
Fast forward about 3 years after I graduated and I had built up about $300 in rewards. In the meantime, I had paid roughly $200 in membership fees to stay in the program. Wow, all of that time and effort to stay on top of the credit card for a lousy $100??? Not to mention that I had subconsciously decided to buy some things that I would have otherwise not purchased if I didn't have the rewards program, which I'm sure cost me more than the $100 I had earned. I decided it wasn't worth it and canceled the card.
But canceling the card was hard. It took me 3 months to follow through with cancelling it - it was my first card after all. Now, I only use cash or my debit card. There are no membership fees, late payments, or accrued interest. There are no emotional highs, no emotional lows, and no concerns whether the payment went through in time. Just money.
So when all was said and done, I had learned:
- I had made a financial decision without fully understanding the consequences of my decision
- Getting my first credit card was an emotional roller coaster
- Having a credit card is a financial burden, not financial freedom - it was just as easy to slip up using a credit card than it was to use it "responsibly"
- The credit card rewards program was in place to make the bank money, not me
- I spent more money using the credit card than using cash because spending cash hurts
Next up: Paying for college with student loans
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