Financial advisors say that credit cards are a force with which responsibility also comes, and they do not say this unnecessarily. Mismanagement of credit card can lead to financial trouble. Today, parents or any other relatives hand over credit cards to the children. But they should understand that it is important to tell them some useful things before giving them a credit card.
Buy now, pay later (Purchase now, payment later), along with this feature, a variety of attractive benefits. For example, due to getting cashback and gift points, credit cards have become a very popular payment tool, especially for the young people. With the help of these cards, young people also get the feeling of financial freedom and the power to fulfill their wishes. But experts say that with this power comes responsibility. And they do not say this unnecessarily. But before your children start using a credit card, it would be fine to inform them of some important things.
They will get add-on credit card
Mismanagement of credit card can lead to financial trouble. Therefore credit cards are not issued to people below 18 years. So being a parent and a primary credit card holder, you can give them an add-on credit card.
Credit limit
Primary credit cards have a credit limit share with add-on credit cards. Tell your children what the credit limit is and why the expenses from the cards (ie, both primary and add-on cards) should be within the credit limit. Actually, if your combined monthly card bill does not exceed 30% of your credit limit, it is best because it helps to maintain a low credit utilization ratio (CUR) which is good enough for the credit card of the primary card holder. Proves that. Tell them that they should set a monthly spending limit and never spend outside that limit. You can also set a spending limit on your add-on cards. This will help you to get into the habit of financial discipline in your children and avoid excessive expenditure which will make it easier to get the most out of this great tool.
Credit Card Statement: Bill Date, Due Date and Minimum Amount Due
Tell your children how to read a credit card statement so that they can clearly understand what the Bill Generation Day and Due Date is so that they can easily pay the bill. In addition, tell them why it is necessary to pay the card due before due date (ie within the interest free period) to avoid additional interest charge and late payment penalty. Tell them why they should never get confused about the minimum amount due which is a part of Total Outstanding Bill Amount. Paying only the minimum amount due only helps to keep the card account active and avoid late payment fees, but it does not help to prevent the bank from charging interest charges on the outstanding balance.
Card security
It is important to re-emphasize that non-payment of credit card bills on time may result in excessive interest charges and late penalty as well as damage to the user’s credit score. Since the primary account holder is responsible for all payments associated with the card account (ie, purchases made by the add-on card user), the payment process, penalty fees and non-payment of card due to his child or late payment It is necessary to tell about the other consequences that can be encountered. Before making a monthly payment, check and reconcile the transactions on the statement with the add-on card user to monitor their children’s spending patterns.
If a credit card is used to withdraw cash from an ATM, the card companies charge a very high interest rate. Cash withdrawal is also offered on add-on cards, so before your child starts using the card, you must tell him about such charge associated with withdrawing cash. Apart from this, interest starts on the day of withdrawal of cash on it, as like other card purchases and transactions, there is no interest free period when withdrawing cash. Tell them that they should use this facility only as a last resort to arrange cash during a financial emergency.
