Originally Posted by tracitaylor05
There are only two "benefits" to credit cards:
1. You can buy something now and pay for it later.
2. It helps you build credit.
The downsides of credit cards are many:
1. Buying something now and paying for it later actually means that you are paying MORE for the item than it is actually worth. For instance, you want that pair of shoes. The shoes cost $70. Because of interest, the shoes that are $70 today, you are paying $85 for next month. And that 21% will accumulate for every month you carry a balance. So if you have a credit card with $100 worth of charges on it, paying anything but the entire balance leaves you owing another 21% every month. If you pay $50 on your $100 balance this month, the next month you will still owe $60, and that's only if you don't purchase anything else.
2. It keeps you in debt. The more credit cards you have, the more likely you are to live on credit, which means you are constantly getting further and further behind in your debt. More than a few people in this country have $20, $30,000 in credit card debt alone.
3. One missed payment on a credit card is enough to drive your FICO scores down, which means you have to work harder to bring your FICO score up in the future. And that one missed payment will follow you around for the next seven years.
4. A better way to build credit is to buy a house or by a car -- a used car that will have lower payments than a new car. When someone rolls off the lot in a brand new car purchased on credit, the $20,000 car loses nearly half of its value. The insurance on the car is also five times more expensive because you have to have full coverage on the car -- because it belongs to the bank until you pay it off.
5. I went strictly cash ten years ago. Cash doesn't bounce. Cash doesn't charge interest. You can't overspend cash. You can't go over your limit with cash. You don't have math mistakes with cash. And when you purchase with cash, you own the item outright. You might have to wait for what you want, but no one will come to repo your furniture, your car, etc., etc., and it doesn't raise and lower your credit score. Furthermore, no one can change the rules in the middle of the night, like credit card companies do. I am debt free because I only spend cash.
Furthermore, the insurance for my vehicles is $62 a month - for both of them. That means I've got an extra $300 in my pocket that my neighbors don't have because they're paying $350 for their insurance and I'm not.
If you must have a credit card -- which is a good idea for emergencies -- then let me suggest a secured credit card. A secured credit card works the exact same way as an unsecured card, except that it is tied to a savings account that is exclusively used to back the card. If you have $500 in the savings account, your credit limit is $500. If you make a deposit of $250, so that your $500 is now $750, your credit limit raises. They will send you a bill every month, and they report to the credit agencies, which also helps build your credit.
The best part about a secured card is if you ever get into financial trouble, the card can be totally paid off simply by telling the bank to pay the balance with funds in your savings account. This keeps folks from having nasty late payments and chargeoffs on the credit reports, and you can always open a new account any time you want.
Just some thoughts for you. In this day and age, the worst thing a person can be is enslaved to debt. If you ever watch that show Repo Man, whatever, on TV, you will see that credit definitely has its downsides. There are enough people in this world who are facing repo men/women every day, enough to make a TV show out of it. That should tell you how prevalent the problem is, thinking you can afford something when in reality, you can't.
One more thought: Better than 70% of the people in this country are literally two paychecks away from utter financial ruin. The more you can get along with just cash, the better.