Debt Management for Teenagers

You’ve just turned 18 and are beginning to celebrate your new found freedom. Much to your surprise (and perhaps joy) there’s a credit card offer or two in the box. The letter says you can sign-up for this credit card, enjoy a credit line of $1,000 and only have to make minimum payments. Since you’re in your senior year of high school and are already thinking about college costs, this seems like a great deal to you. You can get money that you don’t currently have and not have to pay it back for years. Sounds good, doesn’t it? However, it really isn’t so good, as many other teenagers soon find out.


Debt Doesn’t Pay

Teenagers who end up with credit cards may at first use them to pay for practical things such as gas and food. Soon, though, they begin using them to pay for other things like iPods, clothing etc. Before they know it, they’ve racked up a balance that they cannot pay back. They begin making just the minimum payment or perhaps missing it altogether. Late fees rack up and it feels like the debt will never be paid.

If you’re a teenager reading this, you can probably relate. You have a lot of debt and are stressed out. Or maybe you’re considering signing up for a credit card. Whatever the case is, this article will guide you through the process of responsibly using a credit card or paying off debt.


Before You Sign-Up

It’s important to closely read the terms and conditions of any credit card offer you may receive before signing up for it. Take a look at things like the interest rate, late fees and any other potential fees. If you’re confused by any of it, ask your parent for some guidance. (yeah, that sounds annoying, doesn’t it? But chances are, they’ll be able to answer your questions) If your parent doesn’t know, ask a friend’s parent. Or, if nothing else, do some research online. You should be able to get your questions answered.

Next, you should determine how you will use the credit card. Will you use it to pay for gas? Clothing? Other things? Make clear cut plans for how you’ll use the credit card so that you don’t misuse it.

After that, you’ll want to closely examine your own finances. You should not get a credit card unless you have a consistent job. Further, you should not get a card unless you know for certain that you can pay at least the minimum, if not a bit more than that. One of the biggest mistakes teenagers make when it comes to credit is that they assume they can handle credit card payments with their current salary when, in fact, they cannot. Do not make this same mistake, or else your credit score (and, yes, your credit score IS very important) will suffer.

Finally, you should ask yourself a single question: do I really need this credit card? Could you possibly substitute a debit card (which is a lot like a credit card except the money comes directly from your checking or savings account) for the potential credit card? If you can, then you’re better off simply waiting to get a credit card.


Why Getting a Credit Card is Good

By now you probably think that having a credit card is not a good thing. That’s not the case, however. Credit cards, if used responsibly (and we’ll be going over this in the next section) can be a great tool. They allow you to establish the credit necessary for everything from car loans to student loans to mortgages.

If you make your payments on time and don’t carry too much of a balance, you can establish very good credit which will make you look favorable in the eyes of potential lenders. That’s why getting a credit card can be good for you and your financial situation.


Responsible Credit Card Use

As we previously mentioned, credit cards can be a great thing, provided they are used in a responsible manner. What is responsible credit card use? It's using them to benefit, not hinder, your credit reputation. Follow the below tips to be a responsible credit card user.

Tip #1: Don't Spend Without Thinking

A lot of people, teens included, will spend money using a credit card without ever thinking about it. They'll see a cute sweater and want to buy it. Or they'll buy a couple of cool CDs. Little to no thought is given, and at the time these purchases seem small. They build up, though, and eventually there is a considerable amount of debt. This can all be prevented by simply thinking before you spend. Don't make any purchase, big or small, without thinking it through first.

Tip #2: Leave the Card at Home

It's tempting to charge when the card is constantly with you. That's why you should not take the card everywhere you go. Leaving the card at home can prevent splurges from ever occurring.

Tip #3: Make Your Payments on Time

Another step towards responsible credit card use is to make payments on time. It seems so simple, but many teens neglect to make their payments on time. By not making your payments on time, you are setting yourself up for two things: (1) late fees and (2) a bad credit reputation. Frequent missed payments can take a lot of points off your credit report, so always make your payments on time.

Tip #4: Make More than the Minimum Payment

Whenever it is possible, try to pay more than the minimum payment each month. This shows potential lenders that you are committed to paying back anything you owe. It also can help improve your credit score.

Tip #5: Try to Keep the Balance Low

In an ideal situation, you would pay back everything charged at the end of each month. You'd start anew each month with your balance. Unfortunately, not all teens can do this. If you cannot, there's still something you can do: keep the balance low. If you have a credit limit of $1,000, never use more than $350 (35%) of that limit.

Tip #6: Don't Apply For More Than Two Credit Cards at a Time

If you're tempted by multiple offers, it's easy to sign-up for as many as possible. You should not do this, though, as opening up too many new accounts at one time can hurt your score. Only open up one or two accounts and only use those cards.