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Chapter 3: Managing Credit

Two Rules on Borrowing Money 

I have a personal mantra about credit.  There are two reasons to borrow money.  One is to make money, the other is to buy a house.  Any other borrowing of money is living beyond your means and will lower your standard of living.


I have never made a car payment.  I saved up for my first car and paid cash for it.  I have done that ever since my first car and like I am near the end of my seventh decade.


Credit Cards Paid in Full Every Month


I use Credit Cards to buy everything I purchase most months.  I have autopay setup to automatically pay my cards completely every month.  I use my credit cards to earn points. 


As a new Credit Card user I would recommend only spending a little on your card every month and paying it off completely every month. 


It is very important that you develop the habit of paying off your credit cards in full every month.

Buying your gas every month and paying your card off every month is an easy start.


The Credit Trap

Millions of Americans are caught in the Credit Trap.


The disaster starts with one purchase you cannot afford or one credit card bill you don't pay in full.  This is a very common occurrence. Somewhere around 60% of the American public with credit cards do not pay off their card in full every month.  


Credit Disaster!

You start by getting a credit card. 

You get excited and see something you would like to buy.  You don't have all the money for it today. Let's say it's a new barbecue that cost $600 or a new video game console that cost $600.


You would really like the New item and you promise yourself that you will pay it off in the next 3 months.  You tell yourself, “I will just pay an extra $200 the for the next three months and it will be paid off.”


You get your next credit card bill and you don't quite have the $200.  You make the minimum payment.   You are now caught in the minimum payment credit trap.  For most people the minimum payment becomes really easy and paying extra becomes hard. To get further and further in debt is real easy by just paying the minimum payment. 


Listen to a Dave Ramsey podcast sometime. All of the people on his podcast will call in and have $20,000, $80,000 or $200,00 in debt.  Nearly all of them started with just a few hundred dollars in unpaid credit card debt.  


Your debt can grow very quickly. 


New Credit Card Offers


After you have been paying your credit card on time for a while you will start to get more credit card offers. 


Some of them will offer you 0% interest for 12 to 16 months.  If you buy a major item on this new card with 0% interest and just make the minimum payment when that time period is up you will go up to 18 or 20 or 22% interest. 


Be very very careful it is really easy to borrow money once you have good credit.


Don't fall  into the Credit trap pay your credit cards in full every month. 

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