9 reasons to say no to credit

With credit cards and lines of credit (LOC) available in abundance, getting what you want right away has become standard practice, whether or not you have the money to pay for it. There are many popular excuses to convince you that this instant gratification is okay. It is not difficult to understand why we have become a nation of debtors.

Whether you need a little push to get back on track or need a basic knowledge to get yourself out of trouble, here are nine ways you can keep yourself from using your credit when you can’t afford to pay. cash.

Key points to remember

  • Using credit cards and not paying them monthly can hurt your credit.
  • The main drawbacks of using credit when you don’t have the money to pay it off later, in addition to high interest, include the deterioration of your credit, strained family and friendships, and ultimately bankruptcy. .
  • The best practice to avoid credit card fees and interest is not to spend any money until you have saved enough to cover the purchase.

1. Credit discourages self-control

At best, a reluctance to exercise self-control over money can rob you of your financial security. At worst, an impulsive attitude toward buying can negatively impact other areas of your life, including self-esteem, substance abuse, and interpersonal relationships. Yes, showing restraint can be difficult and boring, but it also comes with a lot of benefits and rewards, such as being able to meet financial goals, like buying a home.

2. It probably means you don’t have a budget

Without a budget, it’s easy to forget how loading a cup of coffee here and a new book there can pile up over the month and get you in trouble. For many people, a budget is a great tool for keeping expenses under control.

If you don’t have one, it’s easier to budget than you might think. Budgeting can be as simple as putting together a list of how much money you make in a month, followed by a running total of your expenses. The remaining balance will tell you how much you can spend.

3. Interest is expensive

The reason that self-control is so important when it comes to finances isn’t a moral or spiritual thing, it’s a practical thing. Credit card interest rates are high, making your purchases more expensive.

If you buy something for $ 1,000 with a credit card with an 18% interest rate, for example, and make the minimum payment each month, you’ll end up paying $ 175 in interest after a year and you will still owe $ 946 on your purchase.

If you don’t have the money to pay for something in cash in the first place, you probably don’t want to make it more expensive by adding interest to the price.

4. Rates may increase with unpaid balances

To add insult to injury, the great annual percentage rate (APR) you thought you had on your credit card may have been an introductory rate, likely to rise if the balance is not fully paid off. That’s why an 8% APR can easily skyrocket to 29% in the blink of an eye.

“But that will never happen to me,” you might say. “I will pay my balance in full as soon as it is payday.” You may have the best of intentions, but you can easily be derailed by unforeseen expenses like car repairs.

5. A bad credit score affects a lot

If credit card balances are not paid, your credit score will start to decline and you may experience an unexpected increase in the rate on your insurance bill. Insurance companies that check credit scores when calculating premiums may assume that if you can’t pay your bills, you could be ditching your car or home maintenance, or you could be an irresponsible person. , which makes you riskier.

A bad credit rating can also lead to other problems. Some employers perform credit checks on job seekers and may not hire you if your score is too low. And your credit score is especially important when buying or refinancing a home because it will determine the interest rate on your mortgage and whether you qualify for a mortgage in the first place.

6. Bad habits put your relationships at risk

Studies indicate that couples and families fight over money more than any other topic, and this can be a particularly sensitive topic when there isn’t enough. Accordingly, couples and families should work together on budgets and financial self-discipline, whenever possible.

7. Funding leads to more spending

Many people spend more money on unnecessary or overpriced items when they pay with credit rather than cash. It’s psychological, because buying a $ 1,000 laptop or smartphone won’t seem like a life-changing if you just sign a receipt and don’t even have to think about paying for a month.

On the other hand, you can physically feel the $ 100 bills leaving your hand if you pay in cash, giving you a better idea of ​​how much these items cost and how much money you have left in your wallet now. lighter. To a lesser extent, this may also apply if you pay by check and immediately record the purchase in a checkbook that shows the impact on your account balance.

8. Can lead to bankruptcy

If you have multiple expenses without a plan to pay them back, or if your plan goes awry because you lose your job or have medical bills, you risk finding yourself desperately in debt. Declaring bankruptcy will mark your credit history for up to 10 years and when the report finally goes away, you will need to rebuild good credit.

9. Can erode your peace of mind

If you don’t owe money, you won’t have to worry about late fees, interest, annual fees, or over-limit fees. The best way to treat yourself to something beautiful is to save up and buy it when you can really afford it. The peace of mind that comes from not financing that purchase is like having fun twice.

The bottom line

Credit works well when balances are paid off each month, but can be disastrous when poorly managed. The convenience, protection, and rewards that credit cards offer make them convenient financial tools, but consider the risks before you go without.

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