We’re moving ahead with our series of budget basics with a discussion on one of the reasons numerous folks are in precarious financial situations — credit cards. A good idea at first for many people, credit cards become an albatross which hangs on the necks of individuals for months or years, with balances going down in minuscule steps while interest rates take giant leaps upward.
Credit cards are a curse on the financial world, and it starts when individuals turn 18. Once their birthdays hit, the mailings start coming in enticing new adults to get several thousand dollars in credit for a small, annual percentage rate. Many of these offers seems great at first, especially to those experiencing the initial forays into financial freedom. However, many of these young adults don’t read the fine print to see how much the interest rates go up after a certain period of time. And when the cards get maxed out, these individuals start working with other credit card companies who will give them credit.
The result is a tsunami of high payments and financial practices which hang around with them for years, including when they get married and decide to have a family. And who’s not to say their partner in the relationship doesn’t have their own credit card burden weighing down their neck. This breeds a financial environment which can be carried to the next generation.
If you didn’t understand the concept from the paragraphs above, here’s the question:
Why should you no longer use credit cards?
Simple — you no longer want to be beholden to a financial institution. What if, by this time, you’ve paid off your debt and added three to six months of cash to your emergency fund? Congratulations, because you’re no longer a slave to debt. Instead, financial institutions work for you. Do you really want to go back into modern indentured servitude by applying for yet another credit card, breaking down the process you so carefully built?
The answer should always be, “No, you don’t.” Regardless of how much advanced money their giving you or how low their interest rates are, having even one credit card is too many. Yes, you could certainly respond, “Well, I always paid off my balances before,” but there’s a rub to this in your current situation.
What if you get laid off? Well, your emergency fund is for basic staples — food, utilities, transportation, etc. It’s not for paying off credit card debt. And though you may have paid off monthly balances while you were employed, there’s a very good chance this starts to get missed as you look for a new job. In the end you’re back to where you were before you paid off debt.
Simply put, credit cards are a no-no once you’re debt free. Stick it on your refrigerator in large, neon letters to remember.