There exist two types of financial advisors: those who believe debt may make you wealthy and those who advise you to cut your credit cards.
First and foremost, is debt beneficial? Will debt, whether good or bad, end up making you millions or bankrupting you?
Let’s take a further look into this…
You are borrowing money from other people when you use a credit card. Money that you can invest, buy things with, and since it’s a debt, it’s tax-free, so you can use it to earn money. Not only that, but when you use credit cards, the money in your account stays in your account and may be used as an emergency fund. In this manner, you may be sure that you will always have some cash on hand.
Furthermore, by using a credit card, you are essentially borrowing money free for a month and are not charged any interest or a rate for doing so, as long as you pay off your credit card bills on time, leading to a high credit score. A credit score refers to your trustworthiness and proof that you return the money before the due date so that when you want to purchase a vehicle or a house, the banks will know that their money is secure and that you will repay them. As a result, it is critical to begin earning a strong credit score early on.
You also get paid to use credit cards, such as reward points and cashback. Moreover, you get a lot of insurance and security that cash or a debit card can’t provide. For example, in the case your card is stolen and used, there’s a good chance you won’t recover the money lost on your debit card account, but there’s almost a 100% chance you’ll recover the money lost on your credit card account.
But things aren’t always as easy as they appear, and what you do with your credit card could lead you to credit debt, if failed to repay a loan, or to a heavy fine, if you miss the due date to pay your bills. Keep in mind that all of this will result in a poor credit score. Furthermore, a low credit score indicates that you are untrustworthy, and banks will be unwilling to lend you money.
So, if you’re a person who has self-control over their spending and has their finances planned out, a credit card is ideal for you. However, if you’re a shopaholic with no power or control over your spending, a credit card is not exactly the right choice for you. Your best bet is to take out a credit card. So, it depends on how you use a credit card that can lead to a good or a bad outcome.
Since everyone is not aware of this, only a few people use credit cards effectively and utilise them daily.
How to use your credit card wisely? That’s a tale for another time.