Too often financial advice is focused on one area or question, when it has larger consequences. Solving a problem is usually a good thing. Unfortunately, in the world of finance, one solution often leads to another problem or question. While it’s impossible to predict every possible outcome, stopping to consider all of the options and results can make a huge difference on your finances. It can also save you a lot of headache.
One of the most obvious situations that this approach applies is with the use of credit. Credit and especially credit cards, is one of the most debated topics within the finance realm. It seems like half of the people are saying to cut up your credit cards and the others are saying to use them 24/7. While I generally like to remain as neutral as possible, one of these positions simply fails to consider the negative consequences.
Why People Tell Others to Ignore Credit Cards
There is perhaps no better example of ignoring the consequences when solving one problem than the advice to stop using credit cards. When someone asks about controlling their spending, for example, many people will say, “Get rid of your credit cards.” This can be GREAT advice for many young adults. Young adults have a difficulty saving money, so you would think this is great advice. Throwing out credit cards can be a way of changing your spending habits or your behavior in general. But, this choice comes with negative consequences as well.
As I have related in the past, using credit cards is a great way to build up your credit score and credit history - both of which matter when applying for loans or to lease a car. If you stop using credit cards, while you may be forcing proper spending habits on yourself and getting out of debt, it is also ruining your credit. Lenders need to know that you can manage credit responsible. If not, your options are limited.
Consider the Consequences of Financial Decisions
When you are making a financial decision, such as the one of whether or not to use credit, make sure to consider all of your options. In the instance of using credit cards, while you may be solving one problem, you are only creating another years later. As I have said before, credit cards are not the problem. They may enable you to go into debt, but they are not the reason you are going into debt.
In this situation, it is my firm belief that continuing to use credit cards, even if you limit yourself to buying one thing each month will go a long way towards maintaining a good credit history and improving your credit score. The last thing that you want to happen with your finances is to realize that you are years behind in improving your situation and have to play “catch-up” years later.
Readers, have you ever made a decision to solve one financial problem, only to create another?