Credit Cards – A Necessary Evil
It’s rare to hear anyone proclaim their love for credit cards. More often, you’ll hear complaints about interest rates and debt.
But credit cards don’t have to be a bad thing; in fact, when used responsibly, they can help build a strong financial foundation that opens the door to better loan opportunities further down the road.
When is a credit card a necessary evil – and how can you avoid a bad experience?
Typically, banks and other entities that loan money want assurance that they’ll get their money back eventually.
The more you ask for on a first-time loan, the more risky you are without an established and reputable credit history. Credit cards are, in a roundabout sense, a tool to see how good you are at managing your money. They prove that you’re reliable and consistent in paying back borrowed funds.
As such, investing in a credit card may be necessary to broaden and strengthen your financial future.
A credit balance can quickly build up unless you maintain a watchful eye on it and keep track of what you’ve already borrowed.
Try to reserve credit card use to larger, one-time payments, as opposed to smaller purchases you’ll make several times throughout the week or month. That way you won’t be surprised by a large balance at the end of the statement period.
Using credit cards every day also puts you in danger of overspending, since you may lose track of how much money you have in your checking account. This may lead to making minimum payments on your credit card. Only paying the minimum lowers your credit score and increases the amount of interest your balance accumulates.
It’s a good plan to regularly check your bank account – whether online, in an app, or in person – to ensure your credit card spending doesn’t sneak up on you.
Working the System
The best way to use a credit card is as a tool for building credit.
Use it strategically, only buying things you know you can pay back within a single payment. Thankfully, credit scores don’t care too much about what you buy, so long as you pay off your balance.
As such, you can buy a game system, a new computer, a nice new mattress, or whatever else you’re in need or want of buying. Just remember: only do so after you’ve saved up enough money to pay it back immediately!
Good in Emergencies
Though credit cards are a good tool for building credit, they’re particularly helpful in emergencies. There are times where you simply lack cash when you need it – and a credit card may save you.
While it’s best practice to only use credit cards for things you can pay back right away, that advice only works for expenses that can wait. In these situations, having a credit card on hand can help you avoid going into serious debt, which can harm you in the long-term.
Just be sure to pay back that debt as quickly as you can, or else risk having that notorious bad credit card experience.