4 Steps to Make Sure Credit Cards Are Right for You

 How can you make sure you're ready to get a credit card? Just follow these four simple steps to ensure you're prepared to take on the responsibility. Image source:  Getty Images.

Approximately 7 in 10 Americans have at least one credit card. Using credit cards for purchases makes sense because it helps you to build credit by developing a positive payment history and showing you can borrow responsibly.

Depending upon the card, you can also earn cash back, miles for free travel, or other perks for paying with your card.

However, there are also some big downsides to credit cards. If you find yourself in debt, you could end up paying a fortune in interest. And, if you get in over your head and can't pay the bills, you could ruin your credit score and be left dealing with collectors and potentially even court action against you.

Before you decide to get a credit card for the first time, it's a good idea to take these four steps to make sure credit cards are right for you.

1. Make sure you have steady income to pay your bills 

When you've charged on a credit card, you'll need to at least make minimum payments -- and should ideally pay off the balance in full. Your payments are due at a set time each month and it's imperative you always pay what you owe.

A single late payment can drop your credit score by around 60 to 110 points, depending where your score started. If you don't have a reliable, steady source of income to ensure you're able to pay your credit card bill each month, you aren't ready to have a credit card.

2. Create a budget and live below your means

Ending up in credit card debt can be severely damaging to your long-term financial success. With the average credit card interest rate of 17.07% as of October 2018, credit card interest is simply too expensive to pay.

In fact, if you owed $3,000 on a card at 17.07% and you paid only a minimum monthly payment equaling 3% of the card's balance, you'd take 158 months to pay off the card. During that time, you'd make $5,437.01 in payments -- which means you'd pay almost $2,500 in interest costs.

You should make certain you're in a position to be financially responsible with your cards before you get one. This means you should not need to rely on credit to cover everyday living expenses. You should have a plan for how much to spend on different categories such as food and entertainment. When you get a card, stick with your budget, use your card to make purchases, and then pay off your card in full each month with the money you allocated for your spending.

If you find yourself routinely living paycheck to paycheck or with too little money left to meet your needs, get your spending under control before getting a credit card you might otherwise be tempted to turn to when you have a cash shortfall.

3. Build up an emergency fund

According to a recent Experian survey, 42% of Americans said the biggest benefit to having a credit card is that the card can provide a cushion in case of emergencies. The problem is, financial emergencies are extremely common with 6 in 10 Americans reporting an emergency happening in the prior year according to a Pew poll.

If you have a credit card with no emergency fund, it's easy to break out the card and get yourself in debt when an emergency hits -- but it's harder to get yourself out of debt once you're in it. To make sure you aren't tempted to charge up your cards because of an emergency, try to save at least $1,000 and as much as three to six months of living expenses in an emergency fund before you get a credit card.

4. Shop around for the right credit card

If you think you're ready for a credit card, it's time to shop around to find the right credit card. Some of the key things to consider when deciding which card to choose include:

• What the APR is: If you may carry a balance, knowing the annual percentage rate is important because you don't want to pay a lot in interest. A higher interest card can negate any benefits of a rewards card because the interest dwarfs rewards -- so focus on APR if you think there may come a time when you don't pay off your card in full each month.
• The card's rewards program: Some cards give you cash back, others give you miles, other gives you points to redeem for things such as gift cards. Cards also reward your spending differently. For example, some may give 2% back on everything you spend, while others give 1% on most spending but a higher percentage back on certain categories of expenditures such as travel or dining out.
• Fees the card charges: See if the card charges any fees, such as an annual fee or a foreign transaction fee. It sometimes makes sense to pay an annual fee if you get lots of other card perks and rewards not available on free cards. However, for a first card you may not use much, paying a fee probably isn't necessary. Foreign transaction fees, on the other hand, are charged if you use your card in a foreign country. They matter if you plan to travel, so look for a card without foreign transaction fees if you'll be going abroad.
• Any other special card features: Some cards provide a 0% balance transfer offer so you can move higher interest debt over and pay 0% interest for six months. Others offer special perks such as a statement credit if you pay for TSA pre-check. Compare what different cards are offering to find one that gives you access to features you'll actually use.
  

You may have specific priorities for your card, such as choosing one that's focused on providing cash-back rewards tailored to your spending. Whatever you do, just make sure you know what factors matter and find a card that will best meet your overall needs.

Using credit responsibly is a smart move

If you have your finances under control and can use credit to make purchases you pay off each month, you can reap all of the benefits of having a credit card with none of the downsides. Start working on your plan for financial stability today so you can get yourself a credit card to build credit and earn rewards. You'll be glad you made the effort when you have an awesome credit score without burdensome credit card debt you have to struggle to pay back.

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