Young People Ask . . .
Should I Have a Credit Card?
“I got my first credit card offer in the mail when I was 16 years old. . . . When I turned 18, my debt was up to about $60,000.”—Kristin.
AT FIRST, Kristin planned to use her credit card just for emergencies—and perhaps for that occasional item she wanted to buy but could not pay for with cash. Then things got out of hand. “I started shopping up a storm and went nuts ordering from catalogs,” Kristin confesses. “I bought things I didn’t even care about.” Now Kristin has a different view of credit cards. “I had no idea how much that little plastic card would mess up my life,” she says.—Teen magazine.
Kristin’s story is not an isolated one. A growing number of young people are paving the path to financial peril using that little piece of plastic, the credit card. In some cases, companies aggressively target the young. Likely they know that for many eager spenders, credit cards can become, as financial adviser Jane Bryant Quinn calls it, “a financial drug.” “The more they’re used,” she says, “the harder it becomes to stop.”
Granted, having a credit card can be advantageous—for example, when an emergency arises or when it is not wise to carry cash. That is one reason why credit cards have become so popular in the United States and in other countries as well. If it is not used responsibly, however, a credit card can hurl its user into a financial bottomless pit. Thus, a report published in the Toronto Globe and Mail noted a threefold increase “in the number of debt-ridden 20- to 23-year-olds who have turned to the Credit Counselling Service of Toronto for help.” The report noted that many owed up to $25,000, and credit card bills were one of the main causes of debt.
Should you have a credit card? That is something for your parents to decide. If they think you should wait, be patient. If you prove yourself wise in your spending habits, perhaps it will not be long before your parents grant you greater financial responsibilities. (Compare Luke 16:10.) In the meantime, you should know that using a credit card—much like driving a vehicle—has both rewards and risks.
Counting the Cost
Buying with a credit card is essentially the same as borrowing money. As in all borrowing situations, you must pay back what is lent to you. (Proverbs 22:7) But how do you pay for items that you purchase with a credit card?
Typically, a printed statement is sent to you near the end of each month, showing the purchases that were made with the card as well as the total amount that you owe. The statement also indicates how much you are expected to pay right away. Usually, this amount is quite low. As a result, you might reason, ‘This isn’t too bad. If I just pay the minimum required amount each month, in time my debt will be paid.’ However, the problem is that after a grace period, you will be subject to a finance charge—interest—on the amount that you still owe. And interest rates on a credit card can be quite high.*
Consider Joseph, whose balance on one month’s statement was about $1,000. Of course, Joseph had to pay only the minimum amount due, which was $20. But when he took a closer look at his statement, Joseph found that included in the balance for that month was a finance charge of almost $17! This meant that even if Joseph paid the $20 minimum, he would be just $3 closer to eliminating his $1,000 debt!
How long does it take to eliminate a credit card bill if you pay only the minimum amount due? Citing a hypothetical example, a booklet published by the Federal Trade Commission and American Express notes: “If you have an outstanding balance of $2,000, with 18.5% interest and a low minimum monthly payment, it would take over 11 years to pay off the debt and cost you an additional $1,934 just for interest, which almost doubles the total cost of your original purchase.”
As you can see, if you are not careful, you can dig yourself into a very deep financial hole with a credit card. “I was actually paying almost double for everything,” says Kristin. “When I started having trouble making payments, the creditors added late fees. I had no idea what to do.”
Responsible Use of a Credit Card
Kristin learned the hard way that a “buy now, pay later” approach to shopping can be dangerous. Debts can snowball, and before you know it, your minimum monthly payment may be paying for little more than your finance charges. How do responsible card users avoid falling into such a financial trap?
● They keep track of their purchases and carefully examine their monthly statements to make sure that they are being charged only for purchases they have made.
● They pay their bills promptly, realizing that a good credit history will likely be helpful later—perhaps when applying for a job or for insurance or when financing a car or a home.
● If possible, they pay the full amount owed so that they can avoid being charged a high interest rate on the balance.
● They do not give out their credit card number and expiration date over the phone unless they know the person or the company they are dealing with.
● They never lend their credit card to anyone, not even to a friend. After all, it is the credit record of the card owner that will be affected if the card is misused.
● They avoid using their credit card as a means to get quick cash, as if it were a bank card. Remember, cash advances usually carry a higher interest rate than purchases.
● They do not fill out and send in every credit card application they receive. For most youths, one card is enough.
● They use their credit card with respect, fully realizing that when they make a purchase with it, they are still spending real money, even though they are not using bills or coins.
Enjoying the Benefits
Whether you have a credit card right now or are contemplating getting one in the near future, become thoroughly acquainted with both the benefits and the risks. Ask yourself the following questions: Why do I feel that I need a credit card? Is it simply to acquire material things, to have the latest in fashion, to impress my friends? Should I learn to be more content with the basics, with what the Christian apostle Paul called “sustenance and covering”? (1 Timothy 6:8) Will credit card debts lead to crushing financial burdens that will cause me to lose sight of the more important things in life?—Matthew 6:33; Philippians 1:8-11.
Ponder these questions, and discuss them with your parents. If you do, then whether you have a credit card or not, you will avoid the financial heartache that many have brought upon themselves.—Proverbs 22:3.
You can find out the interest charged by a particular credit card company by looking at the annual percentage rate (APR) noted on the application or the monthly statement.
[Box on page 19]
The Value of Parental Consent
Many youths are first given a chance to get their own credit card when they get an application in the mail. In fact, over a period of time, some receive several applications. “There’s intense competition among issuers to get credit cards into young people’s hands,” explains Jane Bryant Quinn, “because studies show we tend to keep the card we start with.”
Usually a parent or another adult with an established credit history must sign the credit card application so that the issuer of the card has some assurance that purchases charged will be paid for. Sadly, many youngsters resort to deceit to bypass this step. One youth put down her grandmother’s name as the primary applicant and her own name as the joint applicant without her grandmother’s knowledge. Imagine her grandmother’s surprise when she learned that she owed tens of thousands of dollars!
Forging the signature of a parent or another adult on a credit card application is dishonest, and dishonesty is condemned by God. (Proverbs 11:1; Hebrews 13:18) So if you want a credit card, talk to your parents about it. Having their consent is far better for you in the long run. Remember, your parents likely have experience in paying off debts, and they can give you sound advice. So talk to them, and never resort to dishonest means to acquire a credit card.
[Picture on page 18]
Frivolous use of a credit card can lead to financial disaster