Credit Perspectives: Credit Cards Are Dangerous Tools
Filed under: Credit Cards
This is the third installment of Credit Perspectives. Please visit the introductory post for the other perspectives provided in the rest of the series.
The idea of credit has been around since before money was invented, but the invention of the credit card in the 1950s allowed our economy to grow in new and previously-unimagined ways. It has been both a boon and a bust as people have discovered that credit can hurt just as much as it can help them.
By opening up and extending the consumer’s spending power, credit cards have allowed us to purchase our life’s wants and needs on instant short-term loans, but also have allowed us to overextend our consumption beyond what we can reasonably repay. Like most things in life, credit cards have proven themselves to be a metaphorical double-edged sword.
It appears that the world of commerce is evolving and cash is slowly dying out, but there is no reason to call for its extinction. Cash still serves an important function in our economy and it’s a good idea to always have a reasonably-sized cache of available cash on-hand for emergencies. But it is just as important to have a credit card in your name, as long as you treat it with the respect it (and you) deserve.
Credit Cards Are Like Power Saws
In the hands of a skilled carpenter, a power saw is an invaluable tool for helping to build a house. In the hands of a clumsy or careless man, a power saw can be a dangerous weapon, cutting off fingers as easily as 2×4s. In the same manner, credit cards are tools that must be handled carefully by a person educated in their advantages as well as their pitfalls.
Since the credit companies are happy to hand their card to nearly any “average Joe” over the age of 18, it’s up to the consumer to defend himself. It takes a lot of discipline to properly manage your money and your credit and you should avoid credit cards if you believe you may be unable to handle the responsibility.
You Are Your Credit History
Getting by can be inconvenient, if not near-impossible, without a credit history. Good luck getting insurance, an apartment, or sometimes even a job without a credit history. So many of the things we take for granted in our society today are driven by credit that you may as well not exist if you do not have a verifiable credit history. Your best bet is to get a credit card - even if you don’t want one - and charge something to it regularly and pay it off completely every month.
Spend Reasonably and Reap the Rewards
One of the safest ways to use a credit card is to have the cash available to completely cover a purchase, but make the initial purchase on your credit card instead. Once you’ve completed the transaction, “lock away” the cash either in a separate savings account or in your favorite money-tracking system so that way the money is readily available when the bill arrives. This way it allows you to earn the credit card-related rewards for the purchase and earn extra interest for saving that money during your grace period.
Just be careful that you don’t over-exercise this method since it’s so easy to overspend. You could find yourself lacking when an emergency comes up that you either need that cash or some available credit to cover for you.
Look For Help Before You’re Over Your Head
The last thing you want is for your credit cards to become a nightmare haunting your life. If your balance starts getting away from you, you need to look for help before it becomes a real problem. Credit card companies really don’t want you to default because then they’re stuck with figuring out how to recoup their losses. Many of them will work with you if you call and ask for help as long as you don’t do it too often and if you’ve shown yourself to be (mostly) responsible up to that point. And if your credit card company won’t work with you, don’t be afraid to turn to an expert to help you out and teach you how to stay out of trouble. There’s no reason to wait until debt collectors start hounding you to try to turn things around; it’s much easier to right the ship before it’s completely capsized.
Credit cards can seem evil, but in reality they are neither good nor evil. Credit cards are merely another tool in our financial toolbelt. Credit cards may be designed to encourage us to spend, but as long as you remain responsible and keep up with your debt, credit cards can be a powerful ally.
July 10th, 2008 at 12:38 pm
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July 10th, 2008 at 3:00 pm
“Look For Help Before You’re Over Your Head”
THAT’S the best advice. It’s almost impossible to learn how to swim when you’re dumped out in the middle of the ocean.
July 10th, 2008 at 5:07 pm
I think credit card usage can almost be compared to drug usage. Many people can use them without a problem, but for some people, they become addictive and problematic. Heck, there’s even a recovery group called Debtors’ Anonymous. I think one of the biggest problems is that there isn’t enough credit education. Too many people look at credit as free money rather than a loan that must be paid back at a higher rate. Some people can handle it, but some certainly can’t.
July 10th, 2008 at 5:27 pm
Emily,
Thanks for chiming in. I agree with everything you said except for (nearly) equating credit cards to drugs. The word drugs naturally carries a negative connotation. Now, if you said “prescription drugs,” I would agree more since that doesn’t carry the same feel.
“Free money” is exactly how some people treat it. I know that some school districts now require personal finance courses for graduation, but that is only a recent change. I wonder sometimes if credit education should be mandatory before you’re even allowed to apply for a credit card, but that would certainly get shot down for “discrimination.”