Borrowing is not necessarily a bad thing for individuals. It can help with the purchase of major items such as property and vehicles. Borrowing also increases consumer spending which helps to boost the economy. But, we live in a society which often relies too much on credit. So, when is it a good idea to say no?
1. When credit decreases the ability to save
If you can just pile more purchases onto a credit card why should you bother to save for that new outfit, or the latest iPhone? It’s easy to just carry on spending on your card, and think about the consequences later. This is not a good use of credit. If you really want to buy an expensive item, open a savings account and put some money away each month. There is a wide variety of banks to choose from, and you also have the option of using a Credit Union; click this link, for more information. It’s important to learn the art of saving; for the present, and to make sure you are financially secure in the future.
2. When budgeting skills are affected
Budgeting is an art that is often neglected when credit is available. Put the credit card away, and start working out how much you can afford to spend. You need to list your expenditure each month; split it into three amounts, the amount you spend on bills, the amount you need to pay for costs such as food and social activities and an amount to put away for pension savings, or towards expected high expenditure. Remember, experts suggest you should have at least three months usual income saved for any emergencies that occur. If you budget wisely, and have an emergency fund, you are less likely to have to reach for a credit card.
3. To avoid credit card interest rates
When people start to use a credit card they often intend to pay it off as soon as they are paid. They do not think they are going to have to pay interest. Realistically, this is often not the case. Life gets in the way, and you end up not paying the amount owed off in full. You start to pay interest and then you think that if you are paying anyway, you may as well use the card again. Pretty soon you can find yourself struggling to pay, and what started off as just a one-off spend, turns into a worrying problem.
4. To avoid problems with your credit score
Using a small credit facility, and paying as you agreed, can help to build your credit score. If you want to obtain credit such as a mortgage, it’s better to have a reliable credit history than no credit history at all. However, using a lot of different credit providers, and not keeping up with payments, can have an adverse effect on your credit score, which can make purchasing a home or a car virtually impossible.
5. To really enjoy spending money
This may seem like a contradictory reason to say no to credit; but it’s not. If you save your earnings so that you can afford an expensive meal out or a new watch, the whole experience is more enjoyable. You can just relax in the knowledge that you have paid for something upfront and you do not have to think about making payments for months to come.
Credit is not something you should always say no to; after all, a mortgage helps you get on the property ladder. But you should say no to credit for all the reasons above, if you want to keep your finances in good health.
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Alexa Mason is the blogger behind Single Moms Income, a personal finance freelance writer, and an online entrepreneur. Come hang out with her on Facebook and Pinterest.
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