Most personal finance gurus are very adamant that credit is bad and that a person who is on their first steps in their personal finance journey would rather go cash all the way. For electronic payments, there’s always the debit or prepaid Visa or Mastercard, and so, why should one go back to credit?
However, if you haven’t heard of it yet, there’s actually a happy middle: The Credit Union Credit Card.
Credit Union Credit Cards
Credit Union Credit Cards are, on average, 20% lower in terms of fees, which could save you a lot especially in the long run. By transferring your credit card balances to a credit union credit card, you may be able to save on interest rates and fees; money which you could push toward your savings.
Credit union credit cards also have promotional rates which may be advantageous to you in the long run. For example, some credit unions waive the annual fees for first-time members, and in fact, Calcite Credit Union has no annual fees on both Visa Classic and Visa Platinum. While there are other credit cards that also do not have annual fees, the interest rates may prove high, ranging from 11.99% to 20.74%. If you constantly use your credit card and need to pay just the minimum on some months, the interest rates may be your financial downfall.
For example, if you have a balance of $4,000 on your credit card, you may be paying a monthly interest of around $476 a month, at the 11.99% interest rate. On the 20.74% interest rate, the money you pay toward interest could amount to $829.60 monthly. Add the annual fee that could be anywhere from $39 to $65 (in the second year), and even up to $95 on some cards; this could be a hefty expense, indeed.
With this quick run-through of the drawbacks of using standard bank credit cards, you may be severely tempted to cut the umbilical cord to credit cards and just go with debit forever. However, the extremes never really did anyone any good. So if you want to go for the happy middle, on the balance between going all-cash via debit or prepaid cards or the standard credit cards with the hefty interest rates and annual fees, the best way to do is to choose the right credit union with very affordable cards.
In order to get financially healthy, you still have to practice good financial stewardship, too:
- Pay off all your balances on or before your monthly cut-off. This ensures that you won’t need to pay the interest fees as well as the late payment fees.
- Stay within budget. Treat your credit card, whether it’s from a regular bank or a credit union, as just a lifeline for when you really run out of cash.
- Build an emergency fund. As in Dave Ramsey’s Baby Steps, first, build a $1,000 emergency fund to pad for actual emergencies. Don’t dip into this fund for minor reasons if possible. Then, still on the Dave Ramsey Baby Steps, after you’ve paid off your debts, especially the high-interest ones, you should build another emergency fund worth three to six months for actual living expenses. So if you spend around $3,000 monthly, build around $12,000 to $18,000 of emergency fund savings. If you’re a two-income household spending around $5,000 monthly, then the goal should be around $15,000 to $30,000 in savings. Put this emergency fund in a passbook savings account which isn’t as easy to withdraw from as an ATM account. If possible, make sure that this account isn’t available to use electronically or online, so you wouldn’t be tempted to use the money unless it’s really needed. A passbook account is also more sensible than a CD or a time deposit account because it has no lock-in or maturity periods to work with; a feature that makes it perfect to use for emergencies. If you already have the $1,000 emergency fund, keep that in a separate ATM account, so in the event that an emergency happens on a weekend, you wouldn’t have to wait for the next business or banking day to get the money.
Having a credit card on hand doesn’t have to be an “evil” thing as some personal finance circles make it out to be. Some credit cards, such as Credit Union Credit Cards, may help you work toward your personal financial goals. Just find the right balance, the right card, pick one with zero annual fees and a very friendly interest rate, practice financial responsibility and stewardship, and you’ll be well on your way to financial peace and even financial freedom.
Talk with your Calcite CU representative about the credit card options available to you.