The Consequences of Using Credit Cards
Over the last 20 years, a new tradition has hit college and university campuses. At the start of every fall semester, credit card companies descend on campuses like vultures to a fresh kill. As naive freshman make their way to their first football game and fraternity rush, they are forced to make their way through a literal gauntlet of booths, tables and foot soldiers bent on one thing: loading up these newly independent adults with as many credit cards as humanly possible. For many, the allure of credit is far too tempting to refuse. And if you take a big picture look at it, you do need to build your credit somehow, and using a credit card responsibly is a big part of that process. But the overwhelming majority of young adults face the world of personal finance completely unarmed, due to a failure on the part of both the parents and the school system in not educating them on how to deal with money.
Credit cards are, in the best of times and in the hands of the most responsible users, a necessary evil that you must navigate if you have any plans whatsoever of buying a new car or a new home. One of the single biggest determining factors when it comes to buying big ticket items like a car or a home is your credit score, and the first thing you will do to build your credit score is to use a credit card. In the worst of times and in the most irresponsible of hands, credit cards are the single most life destroying item of the last 50 years. And with the newly tightened bankruptcy laws that have passed in the last few years, it is even tougher to get out from under the mountain of debt that a person can create in a matter of months.
Credit cards are like little loans that you have to pay back, and sometimes, and this is especially true with young adults who don’t already have good credit built up, the interest rates can be routinely over 20 percent. As a matter of fact, it can be close to impossible to find a credit card offer that is given to an 18 year old with no established credit that has a rate lower than 20 percent. Thankfully, many of these cards also come with low credit limits, but if a person signs up for five or six of these cards, and there are at least that many on every college campus every fall, the amount of debt they owe can be staggering. There is really nothing sadder than a 19 year old who feels they have no other financial options other than declaring bankruptcy because no one taught them how to use credit cards responsibly.
Understanding the impact that having credit cards and using credit cards has on your overall credit score is vital. Your credit score is like an albatross that hangs around your neck and follows you for the rest of your life. No other number has a bigger impact on your financial life than your credit score. Every time you miss a payment on your credit card, your score goes down. If you are forced to declare bankruptcy, your score plummets. While it isn’t impossible to recover your credit score, it can be a long, hard road.
Understanding the consequences of using credit cards is one of the most important lessons we can teach our teenagers. Before your child leaves the nest, sit them down with your credit card bills, a calculator and a pen and paper and teach them exactly what they are getting themselves into when they sign up for credit card offers.