There is nothing wrong with borrowing cash for emergencies. At some point, most individuals may have no way out other than applying for a loan or debt. But when swiping credit cards and scrounging for cash from lenders becomes a habit, red flags should be raised. Being in debt may appear harmless on the surface, but it can cause damages on both financial stabilities and relationships of individuals.
(Courtesy of VectorPortal)
Credit cards are prime motivators of living beyond your means.
What makes credit cards so alluring to consumers is the ability to acquire all the things they need without worrying about their budget. Initially, it would feel like getting everything for free.
But no one is spared from the hefty burden of dealing with the payments. You may be in an emotional high from carefree shopping sprees, but your debt will eventually catch up with you and possibly eradicate your savings up to the last cent. That is, if you allow yourself to drown even deeper on a pool of credits.
And when you failed to set aside cash to pay for all the items bought, you are in a big trouble.
Remember that there is a catch to the credit card system. Truth is, you may end up paying more than you should. This is because of the interest rates that add up to the bills. The longer span of time that takes you to pay the debt, the higher interest you have to pay.
Here are more reasons why you should stay out of debt, and scratch away the frequent use of credit cards:
Debt can potentially consume a large portion of your future profits.
In principle, using a credit card and paying for the purchases on a monthly basis entails advancing the expenses that you could have made in the future. The same holds true in borrowing or loaning cash.
The bills eventually piles up and you’ll be saddled after some time. Plus, you may find yourself paying for items that are no longer valuable after several months.
Credits can rob your earmarked budget.
This is worth reiterating: debt causes you to pay more than you should. Suppose you charged $2,000 on your credit card at 11% interest. On top of the original price, you will be paying an extra $1,400. Talk about money going down the drain. Even if you increase the cash you pay monthly, you will still be paying a lot more than the principal cost of money you borrowed.
Debt damages your financial stability.
Borrowing money means you have to set aside a portion of your monthly income, which could have been used in paying other necessities. The bigger the debt, the lesser liberty you have in spending for other things. Needless to say, you pay 12 months for items that are only relevant for several weeks. Debt also keeps you from fattening your savings account. On worst case scenarios, you may even need to withdraw your money from the bank to pay for your debts.
Credits can cost you a home, a car, insurance and a job.
Here is where the situation turns shoddier. Lenders and credit companies keep a record of your debt and how often you pay the bills. Not depositing payments on a regular basis can lead to having bad credit score – a big blotch on your credibility. Applying for loans therefore becomes difficult as creditors would think twice before lending cash to someone who failed to settle his last debts.
Credit histories are also reviewed by employers, especially when the company’s operation and transactions involve money. Nobody would entrust the business’ resources to an employee who can’t even manage his own finances.
Debt can break relationships.
Dealing with debts can be stressful. It diverts your attention and energy from your family and friends towards money matters. Couples may also have frequent arguments about who’s responsible for paying the debts and other expenses inside the house.
Broken marriages because of debt are no longer news. Crimes and suicides committed because of piled up credits (no matter how taboo) has also became a usual talk of the town. Most blame it to the wrath the borrowers feel towards crude lenders. Still, mismanaged finances because of debts are the root of it all.