There are many ways to slip into debt. Sometimes you have no choice. You may need to save your business from collapse. Or you might have made a poor investment. Or you could have a medical emergency that drains your bank account.
Still, most of the time, you get into debt without realizing it. The most cunning way of sliding into self-inflicted debt is the misuse of credit cards.
Here’s why you should use credit cards with caution:
Meet Your New Plastic Friends
It’s easy to get fooled by credit cards. They are bright, shiny objects that attract your attention. They’re analogous to new friends who appear in your life at the right time. Usually, they introduce themselves as simple-to-fill application forms. They might show up in your mailbox. Or, a charming sales clerk at an upscale department store might invite you to fill one out at her counter.
Like good friends, credit cards are happy to go along with your wild ideas. They want to go where you want to go and do all the things that you want to do. Gold-colored ones even give you the subliminal impression you’ve got the Midas touch.
It feels harmless stopping by that expensive restaurant after a long day at work. It feels good to put an expensive gift to a loved one on your charge card. It feels fun to add a few souvenirs at the theme park. After all, what better time to add to your collection of Mickey Mouse memorabilia than when you’re at Disney World!
But soon enough, the word gets out. Before you know it, more plastic friends show up, eager to join your gaggle of happy spenders.
You only realize you’re in trouble when outstanding balances show up in your mailbox. Only then might you ask for help from a financial institution like Jackson Funding. Once you catch yourself spiraling into debt, it’s smart to get a debt restructuring. It will end the nightmare of collection agencies calling to harass you.
When Your Friends Turn Against You
Here are three nefarious ways your plastic friends can turn against you:
- Credit cards encourage you to spend money
Spending money that you haven’t earned feels like free money. You rarely realize that you’re setting yourself up for a world of hurt. Since you feel an emotional high from the instant gratification of a desire when you spend money, you don’t sense danger. On the contrary, you feel like a celebrity: When you walk into a store, they give you anything you want when you flash your shiny credit card at the cash register.
- You pay more for everything you purchase
Even if you can see through the illusion that you’re not playing with free money, another illusion is right around the corner. You may not realize when you’re swiping your card that you’re paying more than the asking price on the label.
You’re paying more because of the high-interest rates. In fact, the more liberal your spending limits, the higher the interest rates might be.
Fortunately, there is an escape clause. If you pay off your balance in full every time you receive your credit card bill, you won’t have to pay more. You also don’t pay more if you’re using a zero percent APR credit card during a promotion. Since this has a limit, you need to remember when the offer ends as well as never to default on any of your payments.
- You’re borrowing from your future self
The earnings of your future self will pay for the things you’re spending on now. Since the future is uncertain, you don’t know what expenses you will have to meet then. Whatever they might be, you’ll have less money to meet those obligations.
- You’re compromising your power to invest.
When you use your credit card, you’re buying liabilities. A liability is a product or service that takes money out of your pocket. You’ll now have less money available to spend on buying assets. These work in the opposite way to liabilities. Assets are products or services that put money into your pocket. So while credit cards may improve the quality of your life, they also diminish your power to invest.
In closing, credit cards are not harmful in themselves. If you use them responsibly, they can be beneficial. The trick is to understand when they are working for you and when you are working for them. If you’re not financially astute, then you’ll probably default to misusing credit cards. In the wrong hands, credit cards become dangerous financial instruments that incur debt.