Credit cards are like alcohol: you’re borrowing tomorrow’s happiness for today,” says Sam Beckbessinger, author of bestseller, Manage Your Money Like a F*cking Grownup. By spending today with money you’ll ultimately need to pay back, you’re potentially digging yourself into a financial hole.
Charge it! A cliché, perhaps, a reality, certainly. When it comes to that trusty card in our wallets, or these days more commonly on our phones, it’s all too tempting to simply tap and relish the joy that comes with our new purchases.
Much like alcohol, argues Beckbessinger, using your credit card for a coveted item or experience makes you feel great in the moment, but if you’re rapidly accruing debt, you eventually pay the price. While credit cards are largely inescapable and can be beneficial if used correctly, managing their downside is all about taking a balanced approach.
The dangers of credit cards
In South Africa, anyone over the age of 18 with a stable monthly income – anywhere from R5 000 a month – and good credit score, can easily obtain a credit card. Suddenly you’re no longer shelling out money you have in the bank, you’re putting it on the card. While you’re aware you’ll eventually need to pay up, it’s easy for this thought to be usurped by the pleasure of short-term gratification.
As your earning power goes up, so too does your credit limit and so the cycle continues. However, regardless of your monthly income, by spending money you don’t have, you run the risk of going into serious debt.
Naturally, with a credit card comes monthly bank fees and interest, with interest rates which in some cases can exceed 20%. Should you not settle the balance in full each month, interest on unpaid balances adds up, boosting your debt. If you pay less than the minimum, late fees and penalties may also be applied.
Get credit card savvy
Credit cards are not inherently bad. For most of us, they’re a necessity. And much like alcohol, if they’re used responsibly and in moderation, they pose no danger. Deep down, you’ll know if your credit card use is spiralling. Take a step back and adopt these healthy credit card habits:
- Never take your credit card to the max. Experts recommend staying below 30% of your limit.
- Pay your balance in full each month or at the very least, pay more than the minimum amount. The higher your unpaid balance, the more interest you’ll accrue.
- Implement a clear spending and repayment plan for your credit card as part of a broader financial strategy.
Sources:
https://www.capitalone.com/learn-grow/money-management/tips-using-credit-responsibly/
