10 • Why do we need a Credit Card?
The Moneychangers have slowly changed the way we live to be dependent on plastic cards. Credit cards have become so integrated into the way we live today that not having one is financially crippling as it even makes it impossible to rent a rug cleaner at the grocery store with “cash” unless you have credit account identification. Understand that just owning a credit card is important to establishing your membership in the credit game and maintaining credit visibility. At best, we truly need credit account identification to represent our stability. However, most people think we need credit cards as a cash “resource,” and once hooked deep on credit cards may even believe they cannot live without credit, because if they didn’t have credit, they would not be able to buy necessities. This is not true. For every dollar you earn you lose 20-30% by having to pay repeated monthly interest on things you bought long ago. Yesterday is draining the cash needed today.
Consider that if you were not paying a big percentage of your income on repeated interest, for things you had long ago you would actually have the needed cash available to buy what you need today! Our ancestors only had their own money to spend and preferred to save rather than be in debt. Given easy credit today we have lost the incentive to save and as result have allowed the lenders to own our future income and take away our financial freedom. Like a drug, Credit makes you feel free in the moment, but once you are hooked on Debt Addiction life becomes an unhappy Prison where you work indefinitely to pay old bills.
We only need credit cards as a membership in the financial industry to establish and maintain our visible financial record of payment habit, NOT as a loan resource to be constantly used at such a high price. If you want to grow yourself to become wealthy, stop paying to use other people’s money; credit cards should only be used as a payment convenience when you already have the money to pay cash as the bill comes in, and infrequently as a backup when faced with true emergencies.
• A Golden Rule: If you have credit cards shoot for low credit utilization. Low credit utilization means that the debt you put on your credit card is proportionally low to your overall limit. In plain English, that means that if you have an average monthly balance of $200 on your credit card but your limit is $2,000, the ratio of your debt to your limit is very low, about 1:10. If you have an average monthly balance of $200 on your credit card but your limit is $400, your credit utilization is going to shoot through the roof, about 1:2 and penalize your credit score.
When you Understand Credit, You will have Great Credit!