No matter how sincere you are about cutting your budget, no matter how frugal you become, there will come a time when you have to make a major purchase using money that you don’t have. There is no avoiding it in this current age of financing. We don’t live in a gold-based economy. We live in a credit-based economy. At some point, your good credit will be the difference between failure and success.
There are some things you should never be a cheapskate about. Your attempts to save money on things like shoes, mattresses, and technology too often end up being penny wise and pound foolish. As distasteful as you might find the prospect, you are going to have to use a credit card for something, somewhere down the line. Still, there is no denying the downside to credit cards. Here are a few of those pros and cons of using credit cards for major purchases:
Con – Interest
In almost every situation, borrowing money means paying it back with interest. The typical way to make money by loaning money is to require the borrower to pay back more than they borrowed. If it is a low-risk loan, the interest amount is generally small. If it is a high-risk loan, the interest will be much higher.
That said, there are some companies, like Crest Financial, that allow end users interest-free credit terms. That means the customer who is watching their budget can still afford to get a few of those big-ticket items on which they cannot afford to skimp, with terms they cannot afford to pass up. But in the typical situation faced by the average consumer, front-loaded interest payments over a long period of time is the necessary evil to getting what you need.
Pro – Instant Gratification
You use a laptop for business. Your laptop took an awkward cannonball into the pool. You don’t have the luxury to wait until you have saved up the money to buy a new one. You need a new, likely expensive laptop right now.
With the flash of a credit card, your laptop troubles are behind you. There is still the matter of paying for it. But that is next month’s problem. The instant gratification a credit card provides is not just about frivolous greed. Sometimes, it is a necessity.
Con – The Bills Don’t Change Even When Your Circumstances Do
No one sets out to be financially irresponsible. They sign a lease, or get a line of credit sincerely thinking that they will be able to handle it over the long haul. And perhaps they could if their circumstances remained the same over time. But life tends to be more volatile for people who are less financially stable. That volatility means that the job you have now, may not be the job you have a year from now.
Even if you remain employed at your current level, if you find that you are living from paycheck to paycheck with your current expenses, you are just one emergency away from no longer being financially viable. That is one car breakdown away, or one broken arm away, or one computer failure away. One more bill will represent that which makes you have to choose which bills to fully pay, and which to float for a more convenient time. That is one of the greatest pitfalls of credit.
Credit Improves Your Credit
Ironically, if you want to improve your credit worthiness for the time when something big comes up, the best way to do that is to use credit, and make timely payments. There are many good tips for using credit cards to improve your credit score such as:
- Keep your balance low.
- Keep accounts open.
- Don’t open multiple accounts. Find one you can live with.
Many people who find themselves in credit trouble go too far the other way by cutting up their credit cards and swearing off of credit altogether. While there are downsides to credit, it is naive to think you can completely live without it.