What are these things? If you said ‘credit cards’, you would be correct. Of course, I would have also accepted ‘debt’, ‘something to avoid abusing’, ‘something highly addictive’, and ‘chick magnet’.
I don’t want to needlessly labor over how these little guys work. I think we all get it; you want something that you can’t afford to pay for right at the moment, you use one of these things. In a little while, you get a bill for the item(s) you bought. You pay for the item and a little extra for the privilege of getting what you want immediately.
These things are tools. They have their uses. For young people, I suggest that these uses are few. They are great for paying for something that you don’t have enough money for right now!!
They are great for making purchases online for books or music, or whatever.
What they aren’t:
I’ve heard other PF people make the argument that these tools are good emergency funds. Well, in a very large sense they are, but when people don’t have an actual emergency fund with actual money, they run a huge risk of destroying themselves financially. For example, my friend here was riding his unicycle to work. If you’ve ever ridden a unicycle, you realize that they are treacherous to stay on. Well, my friend gets in a little fender-bender. Nothing serious, but he will have to miss out on some work while he heals. If he is using his credit card as his only emergency fund, he had better hope that he can get back to work within the month. He might go back even before he is fully ready, because those bills will come in whether he’s ready or not. Without an actual cash back-up, he starts missing payments, his card gets shut down, and now my friend is injured and with no money.
Another mistake people make with credit cards is that they use them to increase their “wealth” by avoiding paying bills. Here’s how this one works: I want to go on vacation. I pay for my vacation on a credit card. When the bill comes in, I charge it to another credit card. My first card thinks I’ve paid it, but now I owe the same money on my new card. Some people will keep this shell game going on for as long as they can, and many people will tell you about all the benefits they are getting, such benefits come at a high price. All it takes is for you to forget one payment, and all the miles or cash back or whatever is gone. Plus, you’re carrying a balance when you don’t need to.
At the end of the day,
Credit cards can be helpful tools, or they can become an anchor around your neck as you try to bail yourself out of deep financial water. Whichever you choose, make sure that you control what your credit cards are, and don’t let them control your finance. In the end, they are whatever you say they are.