Some people think credit cards are evil — for example, famous debt reduction guru Dave Ramsey is completely against it. Some use their credit cards without giving it much thought. Personally, I think credit cards are financial tools that can be used to my advantage, but they must be used with caution. How about you?
Before I go in to my philosophy, I’d like share some common mistakes that I observe.
One of the most common mistakes is to disregard the interest rate. Many first time credit card users fall for this. They are enthralled by the high credit limit and the low monthly payment — extremely cool for college students who “need” expensive gadgets now but can’t afford to wait. Who cares about 22% interest and how long it would take to pay off when the monthly payment is only $20. Better yet, you only need to come up with $20 more per month to buy your next expensive gadget.
There are also those who disregard their budget and use credit cards as extra cash. Unfortunately, your credit limit is not your disposable income — it’s not your money. When you use this money and can’t pay the balance off at the end of the month, you’re going into debt, or going further into debt, whichever the case may be.
Then, there are also those who use their credit cards as a financial crutch. Doesn’t have enough money to pay this month bills? Don’t worry, put them on credit cards and worry about paying them later next month. The important thing is to get this month taken care of.
Can you think of other mistakes people are making with their credit cards?
As promised, here is my credit card philosophy:
That’s it! What’s your credit card philosophy?