I thought I was pretty cool when I got my first credit
card. In fact, you would have thought
that I'd gotten a promotion with a big raise, instead of a piece of
plastic that quickly drained my bank accounts.
That's because it was so doggone convenient. You can use credit cards 24/7 and for almost any reason, from buying food at your local convenience store to an automobile. You can buy almost anything you want before you actually have to pay for it - which certainly fed into my "I want what I want when I want it" lifestyle when I was younger.
Yep, I bought into the "cashless society" notion, because with my cards I was able to carry less cash and buy whatever I wanted - even when I didn't have money in the bank. Yep, I thought I had it going on.
Credit verses Debt - What's Really In The Name?
But here's the real deal. Credit cards are actually debt cards, no matter how you spin it. And if you need to get a handle on your use of them always think "debt card - debt card - debt card" when you're about to use one. This one simple exercise can help you save hundreds, if not thousands of dollars in credit card payment interest.
Credit card companies, banks and other lending institutions, will happily let you make minimum payments forever on your credit limits, which will make them tons of money while you save none of it. A real good deal for them, but a terrible one for you.
It's Easy To Lose Track of The Money You Spend
When you go shopping with credit cards you choose the items you want to buy and the cashier swipes your card - which is where the problem starts. Specifically, you still have all the things you started out with – and there's no less money in your purse or wallet to remind you of what you've spent.
To make matters worse, there is a tendency to underestimate what you spend when you use credit cards. Especially smaller amounts, until they sneak up on you and all of a sudden mushroom into huge debt, leaving you wondering what did you really get out of the deal - a toaster, leather jacket, a vacation to Disney World that you're still paying for 3 years later? That little for a $5,000.00 balance?
And of course this it all happens without you even noticing. It's like the way cell phone bills pile up - the monthly bill is hardly ever the amount that you signed up for.
Credit card companies want you to keep using their cards, and thus paying interest. They will do everything they can to stop you paying off your debt to them before you've paid them lots of interest, since that's how they make profit. Further, the more debt you show you can pay back, the more they'll try to offer you in increased credit lines until they get you to the point where you can't pay.
Money for Nothing, But it's Certainly Not Free
Using credit cards is an effective method of losing a percentage of your income to a credit card company in exchange for nothing. How? As soon as you run a balance, you're paying heavy interest until you fully pay that balance off. Further, paying those bills with your wages prevents you from gaining any interest by having cash in the bank. In effect, you lose twice.
Sometimes Credit Cards Just can't be Avoided
Still, there are times when credit cards are necessary. For example, they can save the day when you need money in an emergency; and when you apply for a mortgage credit cards show that you can successfully manage debt. However, remember that a credit card is mostly liability, so use them with great care.