Nov
Credit cards were originally developed by banks as an easy way to give credit to people. In the old days, if a person wanted to borrow money, they had to come up with some collateral. However, as time went on and banks became even more greedy, they realized that they could make a lot more if they gave these types of loans to low-income people also. The banks saw this large area of the population as a gold mine of loans if they could just lend the money without any strings (other then paying it back). So credit cards were created and have proliferated. Even students who have never worked in their lives are offered credit cards starting a few months before they graduate from high school. These days you don’t need real money for anything like groceries, clothes, furniture, etc. You just use your little plastic card for whatever you want. But you still need money to pay it all back!
Actually, as we all know, credit cards are very useful so long as we use them correctly. For one thing, it is a way to create a good credit reference for future loans (such as mortgage or car loans) for the young person starting out. That is, you get a charge card, charge a new shirt on it, and then pay it off the next month. You do this a few times and you now have a good credit rating.
However, we need to stop using credit cards for every little thing. In particular, credit cards should not be used for everyday things such as buying milk or going to the movies. This has the affect of increasing your income temporarily beyond what you actually can afford. The idea of a cash-less society would be great for a bank but not for the individual. The major use of credit cards should be for emergencies and/or big ticket items that you need immediately such as a new dishwasher (although it probably would not kill you to hand wash the dishes for awhile). What happens if you are driving out in the middle of nowhere and your fuel pump goes and you have to be towed back to the nearest town. First, you won’t be towed unless you have the proper insurance or a credit card and, second, that fuel pump is going to cost you. As to whether the travel insurance is worth it or not, read the section on insurance.
In order to keep yourself out of debt, you should only be using your credit card in emergency situations, for things that you are positive you can pay off within 30 days, or big ticket items you are willing to budget for. Used correctly, these little pieces of plastic can be useful.
Some readers might think this is a very old fashioned idea in that today you can use your credit card for everything from groceries and gas to major purchases. It is predicted that we are not too far away from doing away with cash and just using plastic money. The major problem with this is that 99% of our population are not bookkeepers. That is, most people do not keep track of these “little” charges for groceries, gas, new shirt, etc. until they suddenly find out they are overline on their credit card. Granted, some people do not write down the checks they have written and end up with the same problem, but not as many as those who do not keep a running ledger of all of their charges. Cash does still have its purpose in society. For centuries it has been much easier to use cash then to get credit. Today the lending institutions are trying to change this.
However, when our economy does go into a recession again, those same banks will be scrambling to stay in business as more and more unemployed people cannot make their monthly payments. Just make sure that if your bank ends up closing its doors, you owe them money but do not have your checking or savings accounts with them. No, we do not live our lives hoping that the bank we owe money to will go out of business, but it is always a possibility. Even in today’s excellent economy, banks are continually closing down.