Credit cards can be a useful tool in helping build a credit rating. You can help the young adult in your family to learn good money management skills and avoid racking up debt with their credit card by setting appropriate and responsible limits on the credit card. Here are a few helpful ground rules that safeguard against overusing a credit card.
Use It Sparingly
Credit cards can overwhelm new users if they make regular purchases with it. Make sure to emphasize to the young adult in your family that they should only use the credit card for rare occasions each month. Gas for the car, a trip to the grocery store, and school supplies are some stable (and fairly infrequent) purchases. Even if the purchases are infrequent, make sure that the young adult in your family uses their credit card as little as possible each month. Advise against any impulse spending, as that is often the bane of credit card users. Infrequent and practical purchases only! The fewer purchases they make, the easier it will be for them to pay their monthly bill.
Get a Low Credit Limit
When applying for the card don’t necessarily take the highest limit you can get. It is better for students to start with a lower limit, perhaps $500, so they can’t get themselves into too much trouble at the start. If they are using it sparingly, this should be plenty and they can always increase the limit later when you are sure they are using the card responsibly.
Pay It Off Every Month
With credit card interests constantly fluctuating at ever higher rates, it’s absolutely necessary that the young adult in your family completely pays off their credit card bill every month. If your young adult only partially pays the bill each month, they could accrue debt at an alarming rate. If they can’t make the monthly payments, they’re likely using the credit card too often.
Understand Your Statement
The overlapping nature of the grace period of monthly statements can be confusing to new credit card users. Be sure your young adult understands how much they owe and pays before the due date.
One Card Maximum
One credit card will not pay off another. More credit cards only make your young adult more vulnerable to spending irresponsibly, so be firm about the one credit card maximum. Banks and credit companies can be quite tempting about the credit card deals they offer to young people. Be sure that your young adult picks a single credit card and sticks with it.
Know When To Stop
Treat the credit card as an experiment. If after a few months your young adult is making regular (full) payments on their credit card, then they’re well on their way to building their credit responsibly. However if you notice that they’re struggling to control their spending and/or finding it hard to pay off their bills, don’t hesitate to be firm. Your young adult can always cut their card (or you can hold it for them) to avoid further spending and allow them to get caught up. If they only have one card, the financial damage can be managed. However if your young adult follows these simple rules, they’ll have a much easier time managing their finances.
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