It is common for many young people, who have just entered the workforce, to fall back on their credit cards. While they are very convenient to use, credit cards can eventually chip a large portion of your finances away. Of course, you should always try and only spend the money you have, however when in an emergency, credit cards are not always the best option for everyone. Alternatives such as quick loans could be best for you if your finances are in need of a cash boost.
Why use credit cards?
Credit cards can be extremely convenient for a one-off purchase which you’d like to pay back over a longer timeframe. However, it is also very easy to lose track of how much you’ve spent on the cards as credit limits tend to be quite high. Therefore, it can be tempting to continue spending on a credit card without realizing just how much you’ll eventually owe.
Additionally, most credit card companies allow you to make a minimum payment each month instead of making you pay in full. Let’s assume that your monthly expenditure via credit cards is $1,000. Your monthly income is $2,000. You pay a 20% rate of interest but have to make a minimum payment of $200 to the company each month. This means that in the first month, you pay back $200 and rollover the remaining $800 credit over to the next month. In the second month, you pay back $200 again and roll over $800+ $800 to the next month. If you keep doing this, you would have a huge debt that would surpass your total monthly income. We are not even counting the interest you would have to pay on the credit rollover.
Here is an awesome strategy
It is important to keep yourself financially healthy. This would be important in helping you reach your financial goals – like having a big savings account, buying a house or retiring early. To do this, simply start paying with your debit card instead of your credit card where possible. This would help you in spending the money you already own and can help you get in the routine of budgeting rather than relying on external credit. You would also become more mindful of your expenses this way as you see the immediate financial impact of your purchase.
You should also have a plan in place to begin reducing the amount you owe on your credit card. For example, if the minimum payment on the card is $200, make sure that you spend less than $200 every month via the credit card and keep paying it in full. This will mean that eventually you should pay off the credit card in full and then have an extra $200 per month which would otherwise have been spent on reducing your balance and it could also help you keep your credit score in check. In general, you should always try and use the money you have available if possible before relying on credit. However, if your circumstances change and you find yourself in need of extra cash, there are multiple options which could be available to you. Do your research and decide which is best for you before proceeding with your preferred option.