Should an 18 year old with their first job get a debit or credit card?
I love it when I hear young adults your age that want to learn how to control their money. You are putting yourself in a great position to become wealthy and I applaud you for it. Actually, I am just started with a new client of mine. She is 19 and wants to make sure she is financially savvy. So I will give you the same advice I am giving her:
I wouldn't advise you to get a credit card. Here's why:
You have plenty of time to build your credit. I believe establishing solid financial habits is much more important for you right now. Too many people get into trouble using credit cards these days. If I were you, I would try to avoid these problems because they are a mess!!! Once you have good habits, which you will gain with practice and time, you may start to use them with caution.
Here's how I help my clients deal with their budget.
You should have 2 checking accounts. One that gets your direct deposited paycheck. This account is your main account and should be used to pay monthly bills (if you have any). Then the second one is tied to your debit card. I call this one your lifestyle account. You should set-up an weekly automatic transfer from your main checking to your lifestyle checking account. Let's say you decide that $75/week (which could be half of your paycheck) is enough for you to have some fun with. This money could pay for movies, food, clothes,... Anything that you could delay if needed. The idea is that once your account is empty, you have to wait until next week for your next purchase.
If you keep doing that, before long your main checking will accumulate a good amount of money that you could use for things you planned to buy (like a car... by the way, always buy a car you can afford to pay cash for), or you could start investing to grow your money. This is a simple trick to help you build wealth!
If after a few years, you are getting good at this, then you can start building your credit.
I hope this helps.
You are asking an excellent question. Given that you are just beginning college and have just begun a minimum wage job, it is always easy to spend more money than you have on a credit card. It is always easy to have a debit card attached to your bank account. Many places use it like a credit card but it will immediately deduct it from your account. There is a very good way to build up your credit history. When you have saved up any amount of money such as $100 (lower or higher), you can buy a prepaid credit card. It is somewhat like a savings account. For example, you buy a prepaid Visa card for $100.00 from the money you have in your bank account, you go out with your friends, you can use it, it will deduct from the value of the card but you don't have a debt to pay nor do you have to carry cash. When you have depleted the account, you can buy another one or just add to the one you have. Generally, you can purchase these cards from your bank. Credit agencies will see that you have used the credit you have accumulated and you can build up your credit report without incurring debt. Credit cards can be risky since you can accumulate high interest debt that is difficult to keep up with and pay off. You will do just fine given that you are asking such good questions at this time in your life. Best wishes.
My advice would be to try to obtain a credit card with a $500 line of credit and then use it as if it is was debit card. Meaning only use the card to buy things you already have the money for and pay your balance in full each month. The bank where you have your checking account may have a card that will work for you.
One thing to keep in mind, there are some robust restrictions around extending credit to students under the age of 21 unless the applicant can demonstrate the independent ability to repay or has an adult co-signer who agrees to accept joint liability for the account. This may make getting a card difficult depending on your individual circumstances.
Starting to build your credit history at 18 is a great goal and will help you out immensely later in life. Just remember to be careful and not spend more than what you can repay by the end of the month.
If you are looking to build your credit (a smart move) you may want to consider a credit card. Make sure you only charge what you can payoff everymonth.
Live for Today, Plan For Tomorrow.
-David Rae, CFP
Having a credit card and paying your bills on time is a big help in building a credit history and getting a good credit rating. Get one. Probably the best thing to do is get one from the same bank where you have your checking account. But -- IMPORTANT -- pay the full amount every month. DO NOT run a balance. First of all, the interest will eat you alive. (Rates are usually around 20%.) Get a debit card and use it for everyday spending, and then use your credit card where it's easy (like at the gas station, where some cards will give you a 3% rebate). Second, a credit card is a seductive thing that will suck your money out of your pocket. It leads you to think you can live beyond your means. At your age it's really important to develop good budgeting habits. Total up your take-home income and do not spend more than that amount, ever. I was poor when I was your age, and I scrounged; learned to cook good, cheap meals; stayed home and read books (couldn't afford cable TV); budgeted very carefully. One day you will be rich and look back at how things were when you were 18.