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Dear Qualified Financial Advisor,

I recently started a new job, and as I settle into this new role, I’ve been thinking about my personal finances and how to manage them wisely.

I’ve never had a credit card before. I’ve always managed my finances using a debit card and cash, but I understand that having a credit card can offer certain advantages. However, I want to make sure I make the right decision, and I’m a bit unsure about when the right time is for me to get a credit card, considering my current financial situation and my career development.

I’ve heard that having a credit card can help build a credit history, which might be important for future financial goals like buying a home or a car. On the other hand, I’ve also heard stories about people getting trapped in credit card debt, and I want to avoid that scenario at all costs.

Can you please help me figure out how to tackle this situation?

A Cautious Credit Card Seeker

Dear Cautious Credit Card Seeker,

Firstly, congratulations on your new job! It’s fantastic that you’re taking proactive measures to navigate your personal finances wisely. The decision to embrace a credit card is undoubtedly pivotal and warrants careful consideration.

→ Benefits of Using Credit Cards:
– Building a Credit History
A credit card offers a prime opportunity to construct a credit history, a cornerstone in your financial journey. This history significantly influences major milestones such as home or car purchases. Lenders often evaluate your creditworthiness, and a positive credit history can unlock doors to favourable interest rates and loan terms.

– Emergency Fund and Convenience
Beyond the security of an emergency fund, a credit card provides an additional layer of financial safety. Moreover, it extends convenience in transactions, especially for online purchases and travel bookings.

→ Assessing the Right Time to Get a Credit Card:
– Income Stability
The opportune moment to acquire a credit card is not when enticed by tempting offers or referrals. It’s crucial to ensure a stable income stream. A consistent income instils confidence in managing credit card payments without jeopardising financial stability.

– Budgeting and Financial Literacy
Evaluate your budgeting skills and financial literacy. Proficiency in managing and tracking expenses is vital when wielding a credit card. Establishing a clear budget will enable responsible credit use and deter falling into the debt accumulation trap.

→ Avoiding Pitfalls:
– Responsible Credit Card Usage
To avert potential pitfalls, adopt a mindset of responsible credit card usage. Pay your balance in full well before the due date to avoid interest charges and late fees. Treat your credit card as a financial tool rather than a supplementary income source.

– Understanding Interest Rates and Fees
Familiarise yourself with the terms and conditions of any considered credit card. Be cognizant of interest rates, annual fees, and other charges. Opting for a card with favourable terms is crucial to your overall financial well-being.

– Don’t be Rich by Credit Cards
Avoid acquiring numerous credit cards solely for discounts and offers. Managing payments for multiple cards can be challenging and may lead to overspending. Prudent credit card use is the linchpin to effective budget management.

In conclusion, while obtaining a credit card can bolster your credit history, approach this decision with mindfulness and caution. Assess your financial situation, career trajectory, and personal financial objectives to determine the opportune time.

With responsible usage and a clear understanding of the financial landscape, a credit card can emerge as a valuable asset on your journey to financial success.

Charmi Shah
1 Finance Advisory Committee for Qualified Financial Advisors — Mumbai Chapter

Charmi Shah

By Charmi Shah

Co-Founder, Torient Services

Charmi Shah is a Certified Financial Planner (CFPCM) and Chartered Wealth Manager (CWM®) with over a decade of experience in providing financial advice.

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