Faze reporter Maya Chenke met with world renowned finance and sales coach Kevin Cochran to discuss getting the most out of credit cards
Would you recommend teens apply for a credit card when they turn 18? Does it build good credit, and what is this credit for, anyway?
There is nothing wrong with credit cards. It is important to develop a good credit rating. What you have to watch out for is the responsibility that comes with the credit card. 60% of students who go to university have reduced their class load to pick up a part-time job to pay off credit card debt they earned while going to school. The bankruptcy rate for students under 25 has gone up over 300% over the last five years. When you file for bankruptcy, it affects your credit rating for the next seven years. That means you can’t buy a car or a house or get a loan. It is rare for people to become rich if they can’t borrow money.
What is a good strategy for managing a credit card (i.e. impulse purchases versus emergencies only)?
Should I charge everything on plastic? Only charge things to your credit card that you are confident you will be able to pay off in full at the end of the month. The problem with buying something for $100 is that we get a credit card bill at the end of the month. So if you pay it off in full, you will pay no interest. However, the bank will give you an option of a minimum payment of around $10. Most people pay the minimum and the bank then adds an interest charge of anywhere up to 18.5%, which means you are going to spend a lot more on that purchase than the original $100. The average family in North America carries a credit card debt of $7,000.
Should I imagine a credit card as potential “future” money? What if I really want those vintage jeans…and those sunglasses now?
Buy things you can afford. We will sacrifice what we want most for what we want now. The reason why we don’t buy the car or house of our dreams is because we give into those impulse buys (i.e. jeans) and never save enough to buy the things we truly want.
If I get in trouble overspending, is it better to pay off my card all in one shot or in small increments?
If you get into credit card debt, pay it off as fast as you can because you are paying around 18.5% in interest and that’s huge. I still recommend that even if you are in debt, try to save 10% of every dollar you earn. Paying off debt is very important, however, we can’t forget to pay ourselves. We all want to stop working at one point of our lives but we will never have that option if we don’t save. When I was 21 (I am now 28), I was $18,000 in credit card debt. I was in big trouble, but I paid off the debt and saved money during that time.
How does the interest charge work?
Is it calculated on my balance when the bill comes out? Interest is only added when you don’t pay the bill off on time. Bottom line: PAY YOUR BILLS ON TIME.
Bonus Tip From Kevin: Saving Money And Getting Rich
The key to not spending all your money is to make it automatic. For those students that have part time jobs, in most cases paychecks are automatically put into your bank account. You can make an arrangement with your bank for them to make an automatic transfer of money and put it into a GIC or an RESP depending on how old you are, I recommend setting aside 10% of all money. The key is to transfer the money into an account you can’t touch.
If you starting doing that during your teen years and continue doing that I guarantee you will become a millionaire. Most millionaire’s I know don’t make a million dollars a year, they make anywhere between $40,000 – $90,000…they all have two things in common
1) they all budget themselves
2) THEY ALL STARTED TO SAVE MONEY AT AN EARLY AGE.