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I got my first credit card when I turned 18.  I remember feeling like I was part of some elite club when I got the envelope in the mail, and despite my mom’s warnings to “be careful” and “don’t get in over your head”…I didn’t listen.  Big shocker, right?

I figured one credit card wouldn’t hurt me.  But then I went shopping out of town for my birthday weekend and all the stores I was buying from had special offers of 10%, 15% or even 20% off when you get approved for their store lines of credit.  I couldn’t resist.  I got approved and saved money at stores such as American Eagle, Old Navy, and Victoria’s Secret.  I was in shopper’s heaven!  Or so I thought.

I should’ve just used my Capital One card to buy all the things I bought, rather than signing up for another 3 credit cards at 22%+ interest each.  The only thing that saved my butt was that none of those stores were any closer than 3 hours away from where I lived at the time.  After paying them off, I promptly closed them and to this day, I refuse to open a store line of credit.  (Wait…I have a Best Buy card that can only be used in store, but that has saved me so much money over the years on things we actually planned on buying.  Another post for another day.)

Anyway, I used my credit card throughout high school and college and before I knew it, I was way in over my head and didn’t know how to fix it.  We lived off credit cards and they were used to furnish our apartments, fill my closet, and stock our bookshelves.  I should’ve listened to my mother when she warned me to be careful and be responsible.  See, I actually was a responsible teen, but when it came to shopping…I couldn’t tell myself no.  And I loved to spoil my sisters and boyfriend (now hubby!) and buy great gifts for the holidays.

Maybe I just didn’t know how the whole credit card system worked.  Maybe I didn’t care to know.  Here’s the quick rundown in something I like to call Credit Card 101.

What different types of cards are there, really?  Aren’t they all the same?

No, they aren’t all the same.  First, you’ve got your credit cards…the most popular.  These are the ones that allow us to carry a month-to-month balance and rack up all that lovely interest.  They even allow us to pay only a MINIMUM payment so as not to really make a dent at ALL!  How nice, right?

Then you’ve got charge cards, which require you to pay off the balance at the end of each month.  They’re good for convenience, but only if you really know you can pay it off when the bill comes.  I know that I would’ve only gotten myself into trouble with this, because I used to charge way more than I was willing (or able) to pay off at the end of the billing period.

The next group of cards are your store and gas cards, which are typically only accepted at whichever store or gas station that you get approved through.  There really is no reason to carry these because the stores and gas stations will most likely also accept any major credit card.  The only good reason to have one is if you are young with little to no credit and wanting to establish some.  These cards are normally very easy to get, so your best bet is to get one, use it for 6 months or so, and then cancel it and apply for a standard one if you feel you need a credit card at all.

Finally, you’ve got your debit and secured cards.  This is probably the best way to go if you need to use something akin to a credit card.  Debit cards are issued through your bank or credit union and link straight to your checking account, so the money you’re spending when you swipe that card is really already YOURS to spend.  This makes it easy to shop online because they are issued under the Visa or Mastercard name, which can be used anywhere that credit cards are accepted.

Secured cards are for those who have really messed up their credit and are unable to get any other line of credit.  With a secured card, the issuer requires that you have money set aside in a separate account.  You can normally carry a balance that is equal or maybe even possibly a bit greater than what you’ve got in the savings account.  These cards come with higher interest rates than a traditional credit card, even though they have collateral.

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Next time on Credit Card 101, we’ll talk about how credit card companies make their money, which is in turn wasting YOURS.