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The Biggest Credit Lessons I Learned — the Hard Way

Allie Johnson

June 11, 2013

I use my credit cards responsibly, paying them off in full every month and earning rewards. But it hasn’t always been this way: credit cards and I have a long and rocky history.

Looking back down credit card memory lane, though, I see that I’ve learned a lot from my mistakes.

Lesson No. 1: Learn from others’ mistakes. It makes life easier. When I was growing up, my mom always used cash or checks. My first real awareness of credit cards came from a college roommate who had a Discover card. Let’s just say she didn’t use it responsibly, and she owed about $240. Soon, Discover was calling our home phone all day, from breakfast until bedtime. At our house meetings, arguments about who let dishes pile up or who never cleaned the bathroom suddenly got overshadowed by “What to tell Discover when they call” and whether “Tammi” would ever pay her bill.

It should have been a cautionary tale about the problems that come from credit cards used irresponsibly. Instead, my takeaway was, “I can get a credit card!” To a broke college student who made about $13 a week working as an editor for the campus newspaper and who considered a meal at Taco Bell a luxury, this was an exciting development.

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Lesson No. 2: Always read the fine print and understand how your card works. Not knowing the difference between a credit card and a charge card, I got a basic American Express card and didn’t read the terms and conditions. I quickly bought $100 worth of clothes and was shocked (shocked!) when I was expected to pay the balance in full at the end of the month — as one must do with a charge card. After much worry, many phone calls from AmEx and several late fees, I managed to pay off my balance. I swore off cards.

Lesson No. 3: If you find yourself using a credit card to make up for regular cash shortfalls, you need to find a way to cut your expenses or make more money. Fast forward to my first real job. I was making about $25,000 a year as an entry-level newspaper reporter, and I never had enough money. I thought it would be OK to get a credit card since I had a job. I used it to make ends meet and, over several years, racked up a balance of about $3,000.

This time, my financially responsible mom stepped in and paid off my balance for me. That was extremely generous of her, but I might have learned more if I had to struggle to clean up my own mess.

Lesson No. 4: Don’t try to go it alone. A credit counselor or trusted friend can provide encouragement, ideas and accountability. After my mom bailed me out, I swore off credit cards again and started getting my finances in order. I did pretty well, and when I decided I wanted to buy a house, I went to a first-time homebuyer education program. I found my credit score wasn’t as great as it could be, partly because I had a “lack of revolving credit.” The educator suggested I get a credit card, buy a small item each month and pay the bill in full. I did. After I bought the house, though, I “needed” furniture. You know where this is headed. Soon my balance reached $5,000.

I looked at how much interest I was paying and told myself, “Never again.” Over the next few years, I budgeted to pay extra each month toward my credit card balance. I gave up little luxuries. Windfalls went to the credit card company — my old friend Discover — and the balance began to dwindle. I traded encouragement with a friend who was trying to pay down a similar balance.

Lesson No. 5: Know exactly how much you’re paying in interest and fees. Working to pay off that balance over about four years helped me learn why it was bad to carry a balance. I saw hundreds of dollars going to the credit card company for interest and fees. I calculated how much extra I was paying for the items I’d bought on credit. I thought about what else I could buy with that money. I felt the pain of debt.

I learned something from my experiences that no expert can teach you: What it feels like to be staring at a balance you can’t pay — the sick feeling you get when late fees pile up or when you’re so stressed out you can’t open your mail.

I admire people who manage to organize their finances without ever having those experiences. But, for me, they were good teachers that helped me learn how to, finally, use credit cards responsibly.