Credit Cards
Credit cards should be the most straightforward type of debt to cover. There is a lot of really bad credit card advice out there, but the basics are simple.
The Golden Rule
Never carry a balance. Pay your credit card bill in full every single month, no exceptions.
Credit cards are usually talked about in a negative light, but they're not inherently bad if you always pay off the balance in full every month. When used this way, credit cards can:
- Build your credit score
- Provide purchase protection
- Earn rewards (cash back, travel points)
- Give you a detailed record of spending
Why Balances Are Dangerous
You never want to carry a balance on a credit card because they have some of the highest interest rates of any type of debt—often 15-25% APR or higher.
Let's put that in perspective:
| Debt Type | Typical APR |
|---|---|
| Credit Card | 15-25% |
| Student Loan | 4-8% |
| Car Loan | 3-7% |
| Mortgage | 3-7% |
A $1,000 balance on a credit card at 20% APR costs you $200 per year in interest alone. That's money that could be invested and growing for your future.
Using Credit Cards Wisely
- Set up autopay for the full statement balance (not the minimum)
- Only spend what you can afford to pay off immediately
- Track your spending so you're not surprised by the bill
- Choose cards with good rewards for your spending patterns
Pro tip: Treat your credit card like a debit card. If you wouldn't buy it with cash from your checking account, don't put it on credit.
If You Already Have Credit Card Debt
If you're already carrying a balance, make paying it off your top priority after your minimum emergency fund (1 month of expenses). The interest rates are simply too high to let compound against you while you focus on other financial goals.
Choosing Your First Card
If you don't have a credit card yet, look for one with no annual fee and good cash back rewards:
- Discover it Cash Back — Great first card. Discover doubles all your cash back the first year, and they're known for approving people with limited credit history.
- Capital One Quicksilver — Simple 1.5% back on everything, good for beginners.
- Chase Freedom Unlimited — 1.5-5% cash back, $300 sign-up bonus.
If you have no credit history at all, you may need to start with a secured card (where you put down a deposit). Both Discover and Capital One offer secured versions of their cards that can graduate to regular cards after responsible use.