Recently clients brought their son to open up his first Roth IRA and investment account. In addition to learning about investing, the 19-year-old wanted to know about which credit card he should choose. It reminded me of my first credit card experience. In the late 1990s, my dad dropped me off at Denison University as a newly minted first-year student. That week, the student activities organization hosted a fair with representatives from all the clubs I could join, but for some strange reason, credit card company representatives also had tables. Who invited those guys? I did not sign up to get a free t-shirt, toaster, or whatever they were offering. I remember trying to ignore them as I walked into the student union building to collect my mail, which included another credit card offer.
A decade later, President Obama signed the Credit CARD Act of 2009, aimed at reducing student indebtedness. My older sister was a victim of the predatory marketing practices. When she graduated from college, she had eight credit cards, all maxed out. The new law banned gifts on campuses, restricted underage marketing, and required young adults under 21 to demonstrate independent income.
So, what should a young college student today do if they want to build credit? How does managing debt and credit cards differ for someone in their 30s or 40s with a mortgage and two small kids? For those who are approaching or in retirement, enjoying a comfortable cash flow and peace of mind when it comes to money, which credit card should they use?
Your First Card
If you’re new to credit, your focus shouldn’t be on rewards. Let me emphasize that: do not consider a credit card’s benefits or reward points when you start using debt. At this stage, debt is about learning to leverage it. It’s all about convenience. Think of it as a short-term option, ideally lasting less than 30 days. This learning period will likely last five to seven years, so be patient and don’t rush.
The best card for this stage is your parents’ American Express. I know it’s not for everyone, but if your parents are funding your food and gas, they should get the reward. When you want to start paying for your own bills you begin the process of becoming financially independent. When you pay the bills, you get the rewards.
Your Second Card
Dave Ramsey teaches that all debt is bad, similar to how some people need to abstain from alcohol. Excessive use of anything can lead to addiction. However, if you use debt responsibly as a leverage tool, your goal should be to avoid becoming a slave to the lender; instead, aim to take advantage of the perks.
During phase one, you establish credit history; the goal is to raise your credit score above 670. To get there, you will pay your bills on time or early, and never be late! The second appropriate card you might choose is from a gas station, if you drive a car, you will need gas. It’s a beginner card, no frills, just try not to make a mistake and miss a payment. Each bill should total less than $100 per month. The idea is that you train yourself to pay the bill on the day you receive it. Many people pay the bill on the due date to buy an extra 30 days. That feels too leveraged. Have the amount in cash that you pay on the credit card in full every month, when it arrives. It’s a better habit.
Evaluating Reward Cards
Rewards generally come in three flavors: cash back, points, and miles. Cash back is the simplest and hardest to misvalue. Points and miles can be worth more, especially through travel, but they require more effort to use well. As you add cards, the question becomes whether an annual fee earns its keep. The math is straightforward: add up the rewards and credits you’ll realistically use in a year, subtract the fee, and see whether you come out ahead. A $95 fee is worth it only if the card returns meaningfully more than a good no-fee card would.
What Applies to Everyone
No matter your stage, a few truths hold. Interest is expensive regardless of income. The average APR on accounts carrying a balance sits above 22%, and roughly half of cardholders revolve a balance month to month. Total U.S. credit card debt is around $1.25 trillion, and a balance paying only the minimum can take well over a decade to clear. No reward rate comes close to outrunning that.
Protect yourself, too: monitor statements, enable fraud alerts, and check your credit report regularly. And align your card strategy with your actual spending, not an aspirational version of it. The best card is the one that fits how you already live and that you pay off in full every month.
What’s Next
Establishing good habits early is exactly why we created Midwest Millionaires in the Making™ for the children and grandchildren of clients. Designed to set the next generation up for success through the power of early investing. Learning to manage debt, staying disciplined, and letting good habits compound are the same principles that make a credit card a tool rather than a trap.
If you are a Midwest Millionaire and would like to get your children or grandchildren involved in this program next summer, feel free to schedule an introductory call with one of our financial advisors. For over two decades, the Hurlow Wealth Management Group has helped clients achieve their financial goals by creating clarity around priorities, instilling confidence in decision-making, and ultimately to achieve a level of comfort before retirement.
