Credit cards when starting a career

When starting their careers, most people don’t immediately consider how to manage their student or existing credit cards. However, it does bear a few minutes’ thought, as the potential savings at this early stage can be quite high.

When starting a career, most people earn more money than they have ever earned before, and if they don’t go off on a spending binge, it’s natural to put some of that money aside. But rather than parking it in a savings account, even a high-yielding account, the best returns are likely to come from paying off any existing credit card debt.

Credit card interest rates are often three or four times higher than the amount earned by a savings account. There may also be a tax advantage here, as the interest on a savings account usually is taxable.

For those who decide to pay off their student or existing credit cards, it’s a good idea to concentrate the repayments on the credit card with the highest interest rate while making minimum repayments on the others. This minimises the amount of interest paid overall, maximises the amount of principal reduced with each payment, and shortens the time required to discharge the debt.

With their new and higher earning power, many people starting a new career are offerred credit cards carrying lower interest rates and higher credit limits. Transferring balances and consolidating debt onto cards with lower interest rates is another way to reduce the new graduate’s debt load quickly.

Another possibility is to apply for a consolidation loan. These loans can be less expensive than carrying credit card debt, and the fixed repayments are spread over a negotiated time period, making budgeting easier. However, the new careerist should resist the temptation to start spending on their credit cards again, increasing their debt without recognising it.

For the new careerist, credit cards are powerful financial management tools, capable of smoothing the peaks and troughs of earnings, but they should not be seen as a way of simply spending more.