Credit Cards Catch 22
Friday, July 11th, 2008Credit cards are the bane of society. Yet, ironically, without some type of credit it may be difficult to get a loan, purchase a home or a car. It’s a catch-22 situation in that the FICO score on your credit report is determined by the amount of credit you have. The higher the score, the better positioned you will be to buy the house or the car. Too much credit and you become a risk; not enough credit and you’re still a risk. What’s the alternative? Cut up those credit cards; pay with cash.
If this sounds like a contradiction, perhaps it is. Consider the consequences, however, when you have multiple credit cards with high interest rates. Do you have trouble sleeping because the sheer burden of carrying so much debt is keeping you up at night? You are not alone. Statistics show that consumer debt is over 2 trillion dollars and that most households carry at least $9000 in debt.
Between the credit card applications that arrive in the mail and the credit card machines that are located at every register in just about every venue, there has been a subtle manipulation by the credit card companies that tell you it’s better to use a card than to pay with cash.
Think about it. With millions of websites offering every conceivable item you may ever need – all requiring a credit card, it’s no wonder plastic has replaced the dollar bill.
This is not to say there aren’t card holders who use credit responsibly. But there are just as many individuals who have maxed out their credit cards and are now faced with the reality that these debts have to be paid one way or another.
Declaring bankruptcy is not an answer; it is only a short term solution. Statistics assert that even though there is a ten-year mark on a person’s credit report after filing for bankruptcy, they are more likely to begin the vicious cycle all over again. In fact, judges advise people how to regain their credit standing.
If you are in debt, there is only one solution. First, cut up all the credit cards except one. Keep that in reserve only for extreme emergencies. Next, pay off the high interest rate cards first, by doubling payments if you can. Then proceed to pay off each subsequent credit card using the same method. Call the credit card companies and ask to have the interest rates lowered.
Make a promise to yourself that from now on you will pay with cash. Make a monthly budget to determine how much you owe, the household expenses, and how much you can put towards paying down the debt. If you have to, put the one credit card you do have in a safe deposit box or give it to a family member to hold on to. The less temptation you have, the better. When you go out shopping - if you can’t afford it, you can’t buy it.
Our parents and grandparents didn’t believe in credit and they were better for it. Credit cards can become the financial ruin of the least among us. The stress alone can cause ill health. One can make this analogy: Computers are like credit cards - utilizing them can be a wonderful experience but when they crash, it can be a nightmare.
