We’re often told that family and finances don’t mix. But if you’re close to a sibling that’s making a major money mistake, you might feel comfortable stepping in to help.
For example, what if your sister is 27 and still doesn’t have a credit card? If you want to help her get started, take a look at the details below – the Nerds have a few ideas to make the conversation more manageable!
Figure out why she’s hesitating to get a credit card
The first way step toward helping your sister understand why getting started with credit is important is to figure out why she’s hesitating. People have complicated feelings about credit cards, so listen carefully to her concerns.
If she’s having a hard time explaining herself, here are a few questions to get the dialogue going:
- Are you worried about getting into credit card debt?
- Do you understand how credit cards work?
- Do you know the difference between credit cards and debit cards?
- Why did you decide not to get a credit card when your friends got theirs?
- Do you know what your credit score is?
Educate her about the finer points of credit card use
The next step in getting your sister started with plastic is explaining the finer points of credit card use; you’ll want to go over the essentials of both how credit cards work and how using them responsibly can benefit her finances overall. Knowledge is power, so giving her the facts will help her feel ready to tackle this new challenge.
Feel free to use your best judgment and her answers to the questions above to decide which of the following points to elaborate on; however, it’s probably a good idea to at least touch on all of them:
Making payments – Explain credit cards are essentially short-term loans. This means that bills come every month, and paying them on time is essential to building and maintaining a good credit score.
Spending – Clarify that there’s nothing wrong with using a credit card for all of her regular purchases, but that spending more than she can afford to pay off in one month could spell trouble. Credit card debt is expensive, but it can also hurt her credit score if she allows her credit utilization ratio to creep above 30%.
Interest – Discuss the fact that interest is only charged when you roll a balance over from month to month; this will help drive home the point about avoiding overspending.
Fees – Go over a few common credit card fees, such as late fees, annual fees, and foreign transaction fees. Emphasize that nearly all fees are avoidable if she’s managing her card usage properly.
Credit – Explain that using a credit card responsibly (paying bills on time and staying out of debt) is a great way to create a good credit profile. This, in turn, will make it much easier to rent an apartment, set up utilities and qualify for other loans.
Rewards – Aside from the convenience and credit-building opportunities that plastic provides, it’s also worth pointing out that she could be earning rewards on all of her regular spending. Briefly discuss that rewards can come in many flavors, so there’s definitely something out there that’s right for her.
A word of caution: Keep boundaries in mind
The Nerds understand why you’re concerned about an adult sibling that’s shunning credit – after all, she’s missing out on so much! But remember that everyone has his or her own way of managing money, so it’s important not to push too hard.
If your sister becomes uncomfortable with the conversation or listens politely but confesses that she’ll probably just keep doing what she’s doing, drop the subject for now. Respect the boundaries she’s setting and resist the urge to keep prodding her about it. At the end of the day, she’s an adult who’s capable of making her own financial choices – but she’s lucky to have a brother or sister who cares so much!
New credit card user image via Shutterstock