Credit Cards: A Good Idea for Teenagers?

Credit cards may seem like a great idea once you reach the age of 18 but the hidden fees, high interest rates and future penalties on your credit score may hurt you rather than help build positive credit history.

First, let’s see if you are ready to get into the world of using a credit card. I would recommend having a job, I mean how else are you going to pay off the balance every month (and don’t think you can borrow $25-$50 per month from your parents to cover the minimum monthly payments but I’ll tell you why later).

Second, I’m sure you know your average pay check per week. Let’s say you make $200 per week after taxes, that’s $800 per month. Allocate about $350 per month for gas and $300 per month for fun money, and $100 for car insurance, that only leaves you with $100 of disposable income per month.

Third, now that you have allocated your monthly paycheck it’s time to look for a credit card. Be careful when looking for credit cards, many credit cards charge maintenance (annual or monthly) fess and have high interest’s rates. Do your research. Look for student credit cards, they may have high interest rate but that does not matter as long as you pay off your balance every month (if you do not pay off your balance you will be subject to the APR; if your payment is late your could face a penalty of $35 or higher and an increase in your APR to about 30% or more).

Next, now you know you can spend $100 per month on your credit card and you have picked out a credit card after doing some research that we talked about above. Now, let’s talk about paying off your credit card monthly. The key is to not spend over the amount that you can afford because if you do not you will have to pay a hefty interest rate per month. (Note: The maximum amount of a balance on a credit card should be no more than 30% of available credit).

For example, let’s say you went on a vacation and spent more than your $100 per month that you know you can afford. So, your balance on your credit card is $639.12 (credit limit is $800), your Annual Percentage Rate (APR) is 18.24%, your billing cycle is 31 days and you only pay the minimum monthly payment of $25.00 every month. It will take you about 3 years to pay off your balance of $639.12 and you will pay about $133 in interest*!!!

If you pay your credit card(s) off every month on-time you will be building positive credit for the future which could help you get lower interest rates on your car or first home purchase. 

If you have a credit card how do you keep up with them? Any success stories? Advice for younger adults just starting out on their financial journey?

*Max Rash is not a licensed finance professional. All information is believed to be accurate but not deemed reliable