Finance 101: Credit Cards and the Holiday Nightmare

by Erin Dresch

When is the time to get one’s first credit card? I don’t really spend frivolously, but don’t have significant disposable income. I work a full-time job that I love but that pays pretty sad wages, and freelance to supplement my primary income. The idea of having a credit card is a little scary to me, like I should be making way more bank than I do in order to have one. But as I learned when I moved into my current apartment and had to pay four months rent up front, having no credit kind of sucks, and it takes a long time to build any significant “good” credit. As I understand it, when you get your first credit card, you’re supposed to make relatively small purchases with it a couple of times a month (like a trip to the grocery store or a tank of gas), stay way under your limit, and pay off everything at the end of the month for six months or so.

I’m also unclear on what would give me good credit: always paying off everything at the end of the month, or, after using my card only for small purchases for six or eight months and then paying more-than-the-minimum on a large purchase (like a computer), making consistent payments. I am so confused! Tell me about credit cards!

I’m so happy you wrote, because due to the prevalence of debit cards, I think there’s a huge swath of people who never bothered getting a credit card for most of their early adulthood.

You shouldn’t be scared of them! But I’d also recommend being cautious and conservative for the time being. Meanwhile, it seems like you already know your stuff when it comes to using one. You shouldn’t run purchases up close to your credit limit when you first get your card (it could affect your credit, or the card issuer could lower your credit limit), and, if you can, pay off the entire balance to avoid paying interest. Or keep the balance as close to $0 as possible — that’ll help build your credit score over time.

You also need to watch the account like a hawk. You can avoid going into credit card debt but still get screwed with surprise fees or a jump in the interest rate at the end of the month. And credit card issuers can charge you a fee or increase your rate if you do any of the following: pay your balance late, go over your credit limit, or miss two payments in a row, just to name a few. I know you may think, “Oh, I would NEVER be late on my credit card bill!” But sometimes the days creep up on you, and you’re working on a big project and whoops, you missed a payment. So again, watch like a hawk. Hawk!

Card issuers also add processing and account fees. Stuff like application fees, annual fees, finance charges, etc. And sometimes you can get these charges waved, but policies vary on that.

Ultimately, everyone has different needs when it comes to credit cards, so I’m not going to give you any specific recommendations on where to apply. (I would definitely avoid cards issued through retailers, though. They’re easy to get, but have astronomical fees.) If you have a hard time getting approval, you can try to go through your bank for one. But for your first card, try to keep it simple. Don’t apply for ones with a lot of bells and whistles.

I graduated college about a year and a half ago and (very irresponsibly) moved to a new city halfway across the country without a lot of savings and no job lined up. (Sometimes my optimism gets in the way of my rationality.) After several months of being unemployed and struggling, I finally landed a full time job. The miraculous part is that this job is in the field that I studied, which rarely happens these days! And I get to do really cool and fun things for work!

So, I like my job a lot and feel invested in the company. However, the company is a small business that can’t afford to pay me much, and so I’m still struggling. I *could* start looking for a new job that would pay more, but I don’t really *want* to. It’s nice that now I can afford to pay rent and the like, but still sometimes I get to the point where I’m running out of money before payday and can’t afford to go grocery shopping when the cabinets are starting to look bare. I’ve started trying to budget and save, but I still need more money! I took on a part time job earlier this year, but even just working a retail job a couple nights a week (and therefore sometimes working 10 days in a row, or getting home late and still having to wake up early for the 8-to-5 job) was very exhausting and taking a toll on me, so I no longer work there.

I would love to start my own side business whether it’s freelance work or turning a hobby I enjoy (like vegan baking!) into something I can make money from, but with many things like that you need to have money to start making money. (In order to freelance I would need to buy my own video editing equipment. If I wanted to start selling vegan cookies I would need to spend a lot of money on supplies as well as getting the necessary permits.) So basically, what are some ways to earn a second income that wouldn’t require me to work retail? And if the best way is to go ahead with these freelance/side-business ideas, what steps should I take to go forward with those.

After reading this, I wonder if your employers are giving you a living wage. It doesn’t sound like they are. Before we get to second jobs and freelancing, I think we need to address that.

When working full time at any position, ideally you should be making enough money to feed yourself. It doesn’t matter if it’s a small company. Do some research (Google, asking around) and find out what a typical salary is for your field and position. If it’s similar to yours, then we’ll work on savings and second jobs. If it’s much less that what the average income is, we need to fix it.

If the company can’t afford to pay you a living wage, you shouldn’t be working there 8–5. You need to address this with your boss and negotiate a new salary that is competitive and what you believe you deserve. I know this is tough, because you like this job and are a recent hire, but no one else is going to fight for you. This is really, really important. You are your number one champion and need to start evaluating what is fair and what you deserve when it comes to salary. Don’t be afraid to speak up!

Okay, moving on. If you’re really serious about starting a side business, I have to warn you: it will most definitely be more time consuming than a retail gig. You’d be following your passion, but that usually involves hours and hours of work that may or may not see any payoff.

Now, let’s talk about freelancing options. I don’t think you’re quite ready to launch any side business. Like you said, that takes a lot of seed money, which you don’t have. Try asking around to see if you could assist other freelancers with their gigs to start out. That way they’re fronting the costs, while you get the swing of things and some money out of it. Now, some people aren’t good with sharing. So don’t be discouraged if some folks say no. It’s still worth it to build up contacts. Start small until you find your footing.

I’m already really stressed about buying Christmas gifts for everyone. I have a really big family — mom/step-dad, dad/step-mom, two sisters, a brother, and two step-brothers. Plus a couple of nieces and nephews. Not to mention several friends I always exchange gifts with, plus my boss and coworkers. I just don’t know how I’m going to manage to buy everyone gifts; I’m only 23 and don’t make that much money! I know, I know, we could do the whole secret Santa thing … but I don’t want to be the one to suggest it, because I’m pretty sure I’m the only one that feels so stretched thin financially. How am I going to manage this and not spoil my Christmas cheer??

Man oh man. Don’t we all get a bit overwhelmed this time of year? Props for getting anxious about this weeks ahead of Christmas, though. (I think.) This gives us time to try and fix the situation. You’re going about this the wrong way — focusing on the fact that you have to buy all these folks gifts kind of takes the fun out of it.

First, let’s talk about the family. You don’t need to get every family member a gift! It’s a nice sentiment, but your family loves you either way, and probably would rather you not to go broke. Give your family a heads up and say you can’t afford to buy them all gifts; I think they’ll be cool with it. If someone honestly gets up in arms over it, they’re the one spoiling the Christmas cheer. I’d say get something for the younger set like the nieces and nephews. Everyone else gets a cute card, and something you can make. Bake up a yummy batch of something and divvy it up. Or get crafty and make personalized ornaments, or some kind of festive décor. It will cost you next to nothing, and everyone will love it.

Getting and receiving gifts at work is always nice, but not mandatory. The saying “It’s the thought that counts” really comes to mind. Just bring something in for the staff to show you care. You can bake something, or buy $5 Starbucks gift cards to pass out. A few years ago my office was under siege with sweets during the holidays, so I brought in a big box of clementines and it disappeared in about 10 minutes. Think about what your office likes or needs, but there’s definitely no need to go overboard.

Now let’s get to your friends. Suggest a secret Santa. First off, you don’t know what’s going on behind closed [bank account] doors with your buddies, and it’s likely you’re not the only one who sees their money disappearing this time of year. Secret Santa is the perfect way to celebrate the holiday with your friends, without going overboard with gifts. Or you could just have some fun with it. Last year my friends and I decided to do a White Elephant exchange, and it was awesome and I received a hilarious porcelain old lady.

The main takeaway is there are no strict rules when it comes to giving. But be upfront with those who are close to you, and it will ease up a lot of the burden.

Previously: “I’m dating a man I love very, very much, and … he’s terrible with money.”

Erin Dresch is the producer of business news at NY1, a local news station in New York City. Do you have a question for her?

Photo via Flickr