Recently a colleague told me that credit cards are the root cause of modern day debt woes people have. It’s an evil instrument designed to make people spend needlessly.
Yes a lot of people have fallen into credit card debt, but that’s because they’ve not got a simple thing in their heads that they shouldn’t spend to the extent of their card limit but to the extent of what they can afford when payment will be due and you’ll be surprised what this amount could be.
First we need to understand a simple fact that our money has potential to earn i.e. money can make you more money. So when you go and spend hard cash your loosing out on that opportunity to earn and on the other using credit cards let’s you keep your money with you longer and still spend it now, thus at one point in time you will have more money which also increases your spending power.
So imagine you earn 10k/month and spend 8k during a given month thus saving you 2k/month. Now imagine instead of paying you used your card to pay the 8k and thus your bank a/c would have the entire 10k in it. And by the time your card would be due your next month’s salary should be in your account as well, from which you would pay the 8k, leaving 12k in your account. And even a fool would tell you that banks would pay more interest on 12k than 2k.
Using the above example instead of the expense being a regular 8k expense imagine if it were a one time 18k expense with a 10k income. I would still make the purchase in the first month with 10k in the bank and pay it once the second months salary comes in, when I would have a total of 20k in the bank.
I know this is easier said than done but then I have used credit cards without having any problems for seven years now.