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When Should You Not Use Credit?

When Should You Not Use Credit?

As credit became more available to more consumers it also became a more ubiquitous part of everyday life. What once used to be a tool of the rich and famous to go on luxury vacations and purchase expensive clothes and jewelry has now become an everyday option when paying for goods and services. The problem is that now consumers tend to put all purchases on a credit card and often fail to consider whether or not they have funds available in a bank account to cover the purchases. This has led to significant increases in credit card related debt and has forced many consumers into bankruptcy.

An instant gratification - buy now society means families no longer have to budget and save for purchases when they can pull out a credit card and buy it today. The average credit card debt per consumer currently stands at around $8,000. This leads to many individuals making minimum monthly payments and getting further behind on their bills. It is important for consumers to radically alter their purchasing behavior and only purchase products and services if they have cash available. Convenience needs to be superseded with responsible financial behavior in order to facilitate fiscal stability. The following are a few ideas on how you can determine when you should not use credit.

Tip #1

Back in the days of charge cards instead of credit cards balances were required to be paid in full each month. This is a good policy which many consumers would do well to follow. When making purchases through the course of a month only charge as much as you are able to pay in full when the bill comes in the mail. This is a good idea for two reasons as not only does it prevent a continued increase in credit card debt but it also eliminates interest payments on outstanding balances.

Tip #2

Many consumers over the years have confused wants with needs. If you only buy what you need then more often than not this can be done with cash and not credit. Often individuals try to convince themselves they need some new clothes because they are on sale or they need a new electronic device because their old one isn't as cool as it used to be. This of course is counterproductive behavior which leads to short-term gratification and long-term financial repercussions.

Tip #3

There are a number of social behaviors which lead to people using credit when it is unnecessary or unwise. One of these behaviors is letting other individuals use your credit card. A family member or friend, regardless of the situation, should never have access to your credit card. Don't make the charge for them either in the hope that they will pay you back a later date. When it comes to money, if you buy something or loan someone money consider it a gift otherwise you'll be disappointed. Guilt, depression, empathy or forgetfulness are all poor reasons to make purchases on a credit card which don't address larger issues and only mask the underlying symptoms.

As you can see there are many situations when you should not use credit many of which fall under common sense. Making purchases when you don't have the funds available in a checking account or purchasing gifts for friends or family because you feel guilty are universally bad ideas. Access to credit allows many consumers to make bad decisions quicker and with less foresight to consider the repercussions. Most individuals would be better suited to live on a cash only basis and getting rid of all credit cards with the exception of a single emergency card. If used responsibly, credit allows consumers to take advantage of timely opportunities but if used incorrectly it can lead to excessive debt and bankruptcy which can haunt a consumer for many years to come. The key to financial responsibility is to know when you should and should not use credit and then make your purchases accordingly.

Image by: Adria vidal