Why A Credit Card Is Really A Debt Card

Nowadays the typical American household has 8 credit cards. A lot of Americans carry a debt load of more than they make in a year. In cases like this, with compounding interest and the inability to do hardly more than a minimum payment, millions of Americans are only an illness, a layoff, a pregnancy, or an auto accident away from bankruptcy.

Credit is normally defined as the act of giving recognition or approval. In the financial sense, it is the act of a lender approving the transfer of money between their accounts and the account of the borrower. That doesn’t necessarily mean the real transfer of funds, just the approval of the setting up of a credit line or credit limit. Using a credit card to take advantage of the credit means the conversion of credit into debt. For example if you’ve been approved for $5000 in credit, if you use $500 of it, you now only have $4500 in credit available, and $500 of new debt.

Now that you’ve changed some of the credit into debt, the debt plays a life of its own. At once you’ve to begin paying back the debt, with additional interest. And that interest will cost you future interest, if you don’t pay it back all at once. A common American will give as much as $10,000, or more, for every $5,000 that they take up in this way. Using the credit card is a great way to lose a part of your revenue to a credit card company in exchange for nothing. Yes, you may have got a nice dinner, you may have now a Playstation, you may have a new pair of shoes, however by the time the debt you have to pay back, the Playstation will be disused, the shoes are out of style, and the dinner you have forgotten.

Now you’re losing twice! You’ve to pay interest to the company that you owe money to and you lose interest on the money that you could otherwise put into money market fund, a savings account, or another pretty good investment.

Hence I suggest that you fix in your mind now and forever the message that the little plastic cards in your wallet are really not credit cards at all. To you and to me, that plastic piece is really a debt card, as every time you use it, you’re producing a debt that you have sooner or later to pay back. In some cases credit cards are a really necessary, for deposits on rental cars and hotel rooms, or online or telephone purchases, or for emergencies.

But most people think of them as an expansion of their revenue, an easy way to purchase something that they really can’t afford. Remember always that right use of credit cards is all important to your financial survival.

Related Posts on Credit Card Offers:

Login