I am living proof that humans can make infinite mistakes with finances. When I was in college, credit was something that started marking the line between being just another kid, and being a kid that actually was becoming an adult. I felt powerful with my first credit card, but no one really told me anything about finances.
You see, my parents were pretty much honest hard working people, but we didn’t have much. They constantly told me that college was the key to actually having things, having amazing things. I also realized that my mum always looked longingly at the window displays on the high street. I wanted to give her nice things.
So what do you think I did when I got my first card with a 300 GBP limit? I went out and got her things I knew she would like. Chocolates, a new scarf, a hat I thought was cute. I always figured that I could just buy something else, anything else, to make people happy around me.
I found that while I was pleasing others, I really wasn’t investing in myself. I was going through the motions of credit, but not really getting anything that I would be proud of five years from now.
There are some classic mistakes I made, and these mistakes are ones that I want you to avoid making.
Spending more than what you earn will do you in every time. Honestly, I used to hear my dad tell me about the value of saving, but I never listened to him. When I got my credit card and started getting increases, I just figured it I would be better off getting what I ultimately wanted instead of constantly putting aside my desires. I figured it would be wise to make things work in my favor instead of sitting on the money for a rainy day. It was sunshine in my world, and I always thought it would be like that.
I ended up being made redundant at one of the summer jobs I had, which suddenly made those payments hard to handle!
2. Paying Only the Minimum Amount Due
When it comes to credit cards, you really don’t want to pay the minimum amount due. You honestly need to think about paying as much as you can. When you only pay the minimum due, you’re really just paying the interest. Interest is profit to the credit card company — it’s not really going to affect the principal. That’s why people can pay the minimum on their credit cards and really never get ahead. It would be best to focus on a balance between paying more and handling the rest of your budget.
3. Getting More Credit Than What You Can Handle
Once I had one credit card, I was shocked to find that other credit cards didn’t mind having me. They pounced on me practically every other month! I applied for them because I figured since I had a job, I would be okay.
Boy, was I wrong! I was bombarded by credit, I ended up running up high bills (again, I wanted to impress friends and family and look more grown up), and it just ended up making me miserable.
4. Paying Late on Your Bills
I started paying late on my bills, which ends up just making the problems of credit worse. You have to make sure that you pay on time, because extra penalties are right around the corner. So as I was late, I ended up having to spend even more money and deal with even more problems. This was definitely not something I wanted to deal with!
Just paying on time for three months began to undo the damage I had done previous, and by the time a year passed, I found myself that I was back on track!
5. Ignoring the Process of Making Payment Arrangements
When I started getting into trouble, I tried to just ignore it. I had seen my friends ignoring collection calls, so I figured it would be okay — right? After all, no one really wants to be called over and over about the same bills happening at the same time. I wanted to go back to enjoying my life during college and later after graduation as I got into a good job.
However, when you ignore calls like this, it turns into some pretty scary letters. It turns into a moment where you have to really make sure that you figure out what you’re going to actually achieve in the world of personal finance. If you ignore things, it will come back to haunt you. You can easily get into legal trouble because you have technically signed a contract.
I managed to wake up and make payment arrangements before things got too bad, but some of my friends weren’t so lucky.
Overall, I’m really not trying to scare you with all of these warnings. I just want to make sure that you are focusing on the big picture. I really want to make sure that you’re not running into problems getting things together. I’m making sure that you don’t make the same mistakes I did.
The smarter you become about credit and finance, the more options open up to you. Now that I have a great credit rating, I can move closer to my dreams — like owning a home!