This post is second in a three part series leading up to Valentine’s Day on the relationship problems we most frequently see with credit cards, and how to fix them. To read the first post in this series about “The Emergency Card”, click here.
This post is about the “Treat Card”.
The story usually goes like this…
“I got the card a year ago to build credit, and I thought why not use it for a one time splurge… I wasn’t going to spend a lot. I work hard, and I deserve a break. Why would the bank have given me that money in the first place if they didn’t want me to spend it? That doesn’t make any sense. Besides, I figured I could treat myself and build credit at the same time. It sounded so easy…”
I needed a plane ticket for my cousin’s wedding, so I put it on the card. An outfit for the ceremony, since I don’t have many dress clothes. There were also several meals out, while I was in town for the wedding. Then a month later I had Christmas presents to buy. There were so many deals that I overspent, buying things for others and for myself. I knew I could pay it back later, and the deals might not be there later. Then when some friends invited me on a trip, I couldn’t turn them down. Vacations are important, and keeping up friendships is important. Then I was sick and out of work for two weeks and things got tight. I picked paying for the power bill over paying the minimum on the card. I’m still working on catching up. Now my credit is wrecked and I don’t know what to do. It did get out of hand, but I work hard and it’s not fair that I can’t buy the things I want and that I think I deserve. I’ve been making the minimum payment mostly on time, but I’ve had to charge some other things too, so I’d have the money for that payment. Now I have thousands of dollars of debt, and I never went out and made one big purchase. It just added up so fast. It’s not fair. It’s not my fault I don’t make more money. I deserve to be able to fill in the gaps with credit cards.”
This is a dangerous game to play. It’s hard on you emotionally, knowing you’re not giving your financial security the work and dedication it needs. It’s hard on your family and close friends, watching you stress over money you didn’t have to spend. And it’s incredibly hard on you in the future. Not only do you have to pay off that card, every day you put it off is another day the interest builds. In addition to the interest, you’ll also get a lower credit score simply from carrying high balances on the card. That’s right, even if you pay the minimum payment on time, if you carry a high balance it will hurt your credit scores significantly in spite of the fact that you are paying on time. As far as the bank is concerned, they never gave you the money. They agreed to give you the opportunity to borrow the money, with interest, and with very specific loan payback terms. Banks make money off of interest, and one of the ways they can charge more interest is if you have a low credit score. So there is no incentive for them to not hit your credit every time you don’t make that payment on time. It’s not that they are trying to single you out and take advantage of you personally, but banks are a for-profit business, not a kind, loving company who gives you money because they like you.
It’s tough to make hard financial decisions, but treats are not necessities. A close family member having an important life moment may be one of the hardest things to say no to, but they are also one of the people most likely to want you to make the best decisions for yourself. Chances are, they’ve had to make hard financial decisions before themselves, and may understand where you are coming from more than you think. As much as they may miss you, they will also respect you for planning to have a successful future for yourself. When it comes to giving gifts, sometimes the gift of just knowing you are going to be able to keep the bills paid means more than any material thing to your friends and family who care about you. So don’t be afraid to make DIY presents and coupon clip to save your money. They never have to know you didn’t pay full price. Vacations are important, to an extent. Friendships are always important. But instead of traveling somewhere far away, why not buy a local guidebook and have a stay-cation? You never know what local attractions are there until you start looking.
So how do you handle the pressure of not taking out a loan with your credit card every time something out of the ordinary comes up? Think about what you really want. Visualize the life you want, and the things you want to buy. What kind of treat do you really deserve? A $50 something now, or a house in a few months? A plane ticket to visit a family member, or a house of your own to invite them to visit you in? Sometimes when you get sick, or have a short-term hardship, credit cards can help. But they should be a short-term solution. Remember, they are a loan, and you never want a loan you have to pay on any longer than you can help it. In the long term, a lower house payment is a lot easier than a higher rental payment plus a credit card payment each month. In addition to all of these good things, employers are known to pull credit scores for job applicants, so raising your credit score may even increase your marketability as an employee, and open new doors so you can make more money. It may be a short-term stress to keep everything paid on time and within your budget, and it may sound hard. It will probably be hard. But give yourself some credit! You’ve done hard things before. This one is no different, unless you treat it so.
Take control of your finances, and you’ll be completed with your Path to Homeownership Program and owning your home before you know it!
Until next time…
The Counselors at Affordable Home Provider
Not in the Path to Homeownership program? Call us at 704-900-0404 or visit us at www.affordablehomeforu.com to get started today!
Disclaimer: We are not a lender. We are not CFPs. We are Certified Affordable Housing Providers, committed to empowering families and individuals through our Path to Homeownership program to enjoy the American dream of homeownership. All numbers above are based on a standard 30 year FHA loan, as quoted to us by others. We are not a credit repair company. We are affiliated with local and national credit repair companies and lenders, who work with us to make the Path to Homeownership program a success so our residents are able to purchase their own homes.