Budget Busters – Easy Credit

This is one of the deadliest of all budget-busting monsters due to its seductive and persuasive nature. Credit cards have become the scourge of many families’ finances. Most American families have a credit card debt overhang of $5,000 or more. The use of credit cards is not very widespread yet, but it is still an issue nonetheless. During the stock market boom of 2005 and beyond, many banks rolled out Naira credit cards, and many rushed in, taking to the expressway without a driver’s license. Most credit card debt is on consumer items, items that depreciate in value and generate zero cash flow, meaning they don’t pay for themselves.

Credit cards virtually come with the mail, or you get a letter from the bank offering you one – pre-approved. You do not need to apply to be considered. Just fill out some forms and pick your card, and happy shopping. The credit monster works in concert with the others – impulse, image, sale, and advertising. It is always there, waiting in the wings in case you run out of cash. You can buy now, and start paying next year. Keep shopping.

Easy credit lulls you into feeling you have money while in reality, you have crossed the red line. You spend tomorrow’s money today, on items that may not be around when tomorrow comes. In most instances, the thing you paid for is long gone while you are yet to finish paying for it. Talk about spending money you are yet to earn. You spend next year’s salary today and hope for the best. That is a scary hole to dig oneself into.

Easy credit can sabotage your efforts to pay yourself first. It virtually expands the size of your cloth, giving you the incentive to put on weight (additional expenses) and degrade your ability to stick to your savings regime. It is a direct attack on your savings plan. If you keep accumulating debt, soon the monthly repayment will start eating into your monthly savings. This is shooting yourself in the foot.

One trend you may have noticed is that with financial education, you can turn a negative into a positive. While most use credit cards to emasculate themselves financially, you can use credit cards to move ahead financially. That will be covered in the next post – Using Credit Cards to your Advantage.