Borrowing money has been around forever. Businesses and individuals do that all the time since they do not have enough cash for immediate investing, either for research and development or buying equipment, house, car or paying for college. Nothing is wrong with borrowing, as long as you understand the concept of it, the rules and the risk. That is especially true for credit cards.
This product was created and developed in the past century, which allows us to borrow a lower amount of money, with higher interest rates. In 1958 Bank of America issued the first credit card with revolving credit features. Since then, they have changed a lot and became wildly accepted across the globe.
Yet, for the first 20ish years of my life, I have never used one, or seen anyone use it. My country is behind on many developments, and the use of credit cards was one of them. We simply use the cash that we have. When we run out of money, we borrow from our friends, parents, siblings, and on the 1st of every month, we repay those people and often repeat the process. That was the life I knew, although my parents have never borrowed the money from anyone, at least not that I know about it. I was raised to do the same.
Then, I moved here.
Soon after I got an offer from the mentioned bank for one of those plastic things when I went there to open a checking account. How excited I was! The bank thought I was trustworthy! They gave me my first credit card, yes! I felt like they were rewarding me for something. And, guess how much was my limit? $1,500. Aha. Aha. And all my friends got like $300 or $500. Oh, plus these awesome rewards. Like, you buy gas and you get 1% cashback. Or, you buy food and you get whooping 2% cashback! The banker was just lighting the room with his smile while he was explaining the card’s features. It was contagious and I felt happy.
How little did I know.
What my banker didn’t tell me was that if I don’t pay the card IN FULL each month, they will politely charge me 22% interest. And they will do it again, and again and again until I pay off the entire amount. Not that I didn’t know that, of course, but it was never being said out loud. According to the credit.com, 56% of cardholders carry credit card balances for more than a year. Think about all that money the banks are collecting from interest. No wonder that banker had such a big smile on his face.
The relationship with my first credit card began.
What can I say? I used it and abused it. Then added a few more – abused them too. I paid my price. Quite high, I might add. I learned my lesson.
It’s been 5 years since I first received my first credit card. It took me around 3 years to learn how to manage and fully understand them. Not just the simple math behind it, if you don’t pay the whole thing, you pay interest. That’s easy. But, the emotional part that comes with them.
We use credit cards even when we know we shouldn’t. It feels like with that extra drink you have. When you know your limit is 2 beers, but you have 2 more. Your friends might cheer with you because they drink them too. American society does the same with the use of credit. They cheer you when you spend the money you don’t have. The cards are flashy: silver, gold, platinum. It’s nice to have your name written on them. It’s even nicer to pull them out at the dinner table to impress your friends, even if that means that you might be paying that lovely dinner for the next 3 months.
Bank statements are good friends
that will tell you when you have had one too many purchases. They mean well, and you should pay attention. Read them carefully, that is the very first step towards recovery. They helped me realize how much money I paid in interest every month.
Do I still use credit cards?
I do, but I promised myself I will not pay a dime in interest for any credit card in my life ever again. You know what they say for fire: it’s a good servant, but bad master? That’s how I feel about them now and I choose to be the master. I use two cards only, although I have many more.
All my fixed monthly expenses are paid with one card. I am getting 3-5% cashback for those. I buy food with cash because I tend to overspend with I go grocery shopping if I use plastic. The other card has been used for everything else. But ONLY when my written budget allows me to do so and only for a specific amount. I behave. I might switch to cash in the future, even if we are moving towards becoming a cashless society.
I still want things that I can’t afford. We all do. However, I make a conscious decision every day to spend what I have and be happy with it. So far, I have been doing just fine 🙂