Money Smart Week (MSW) is here. I enjoyed being a speaker at MSW events this past weekend. The audience participation was incredible. Looking back, there’s one question someone asked that stands out to me the most. A college freshman asked, “Are credit cards bad?”
While this wasn’t the first time I have been asked this question, it stood out because she was in school. A young person trying to establish credit, but hesitant to apply for a credit card given all the bad things she’d heard about them.
I remember when I was in college applying for my first credit card. Back then I didn’t sit in any credit seminar or even take the time to research the different types of credit cards. The only thing I really cared about was that there was no annual fee. So it was great to see her taking the right steps from the start.
I told her that credit cards are not bad. A credit card is simply a tool that you can use to handle your financial transactions. They’re only bad if you don’t use them responsibly.
After all, credit is borrowed money. That’s why you’re charged interest when you don’t pay in full. As Benjamin Franklin once said, “Remember that credit is money.”
A credit card is a great way to build your credit history. But you have to use credit wisely. Or else you could find yourself in high interest credit card debt.
If you want to avoid getting yourself into costly credit card debt, you have to practice discipline and self-control. The best ways to do this is to buy what you can afford to payoff every month and control your spending. When you use credit responsibly, you can truly enjoy credit card benefits (cash back, extra warranty, insurance) without the financial headaches.
If you’re in the market for a credit card
You definitely want to shop around. Be sure to compare the costs (fees, interest rates) and benefits (cash back, travel perks) of each credit card. For more tips, take a look at the Consumer’s Guide to Credit Cards and 10 worst credit card mistakes.
Your Take: Do you think credit cards are bad? Why or why not?
Photo: Andres Rueda
No, I don’t think credit cards are bad. However, a lack of knowledge of how you should use a credit card is. As stated credit cards are tools. We as consumers have to know which tools are needed for the job. A credit card is not always the tool needed. Just as a hammer is not always the tool to use for a job.
I have personally learned that you can’t use credit cards for recurring expenses (such as weekly gas fill-ups). Often the expense recurs quicker than you can pay it down. If you have not budgeted properly to pay the expense down when the monthly bill comes, then you are inviting trouble. Troubles associated with credit card debt, rising interest charges, more debt than you bargained for, less discretionary funds, and a lack of peace especially if your tolerance for debt is low. As the balance on your credit card increases so does the amount of interest you have to pay monthly. Based on the amount credit cards usually require to pay towards your bill monthly, you could be paying more in interest than you are paying towards your principle. That means you are taking a longer period of time to pay your debt down and the bank is increasing your debt by way of interest charges. For example, you have a bill that is $1000, and your bank requires a minimum of $50 per month and that’s all you pay. Well guess what, the following month, your bill will not be $950. It will probably be more like $980 because $30 went towards interest. So you may have decided it will take you X amount of months to pay your credit card bill down based on paying $50. You may need to go back and redo the numbers because only 40% of your payment is going towards the actual balance which means it is going to take you longer to pay them off. Anyway, I am sharing lessons learned. I am quite thankful to Kembala’s coaching. It has made me consider these type of things when making credit card purchases. As a matter of fact, they have drastically decreased because of Kembala helping me to look at things from a different perspective and also her arming me with knowledge.
If you are someone looking over this site, and you are considering connecting with Kembala for financial coaching, PLEASE do so. Kembala has not asked me to leave this comment, as a matter of fact she doesn’t even know at this moment I am leaving it. Kembala will work with you to help change your mindset, she will challenge you while always remaining positive. The effect of the coaching is positive change. I am currently working towards paying off credit card debt. It feels very good to see balances decreasing and credit available for use increasing. The greatest part is my credit available for use does not decrease from one month to the next because I spend as soon as it is available (like in the past) but because I am using cash or making myself evaluate do I really need those shoes on my credit card (even if they are sharp). or can I wait for a coupon/sale combination and use cash. Anyway…the short answer…lol. No credit cards are not bad, but the lack of knowledge about them is.
Wow Carmelita! What a nice surprise – Thank you so much for the kind words and for sharing your words of wisdom on credit card debt.
Your detailed example shows us the pitfalls to watch out for with credit cards. We must understand what it means to make the minimum payment only. Because if you’re not careful, your debt could snowball into much more $$$ than you expected. I love your last line – “No credit cards are not bad, but the lack of knowledge about them is.” That’s brilliant.
Thanks again for the opportunity to work with you. It’s wonderful to see the progress you’ve made. Keep it up!!! 😉