Why did you get a credit card? When a tool no longer serves its purpose.
I remember when my middle sister went off to college, my dad gave her a credit card to use for emergencies. What my dad anticipated was likely an ER visit or being stranded in the middle of nowhere. What he did not anticipate was my sister treating all of her friends to breakfast. I remember this vividly because at the time she was in college, I was still in high school and I remember my dad opening up his credit card statement and having some very choice words. One of the great things about being the youngest child is that you get to learn from your older siblings’ mistakes. One of the not so great things about being the youngest child is that your parents learn from your older siblings’ mistakes. So, when I went off to college, my dad suggested I get a credit card to build my credit. He did not offer one, nor did we have a conversation about what constituted an emergency.
What are the reasons we’re told to get a credit card? Isn’t it just these two? You are told to get a credit card to build your credit and for emergencies. You might have been taught that in order to build your credit, you use your credit card sparingly and pay it off in full. Someone likely suggested that you buy a tank of gas every month and pay the credit card bill when it comes due. And emergencies? What might be an emergency? Probably something that my dad anticipated a college-age kid with little resources could encounter – being stranded somewhere or a serious medical emergency. Eventually though, we’ve all moved away from using our credit cards in this way. We put everyday expenses on our cards for “the points” and emergencies have morphed into travel that feels dire because we desperately need a vacation.
For many people, the credit card has become a tool that isn’t working in the way it was intended. Think about this example: You buy a very special sharp knife you only intended to use to carve your thanksgiving turkey. The first thanksgiving you have the knife, you take extreme care in handling it, sheathe it, and store it in a safe place. The next year, you take a bit less care and you add it to your knife block. Slowly, you start using it for every day kitchen tasks – chopping, opening containers, as a tool to scrape off the cutting board. By the fourth thanksgiving, your once-special knife no longer slices perfect portions of turkey because it’s been mishandled for the last three years. On top of that, it leaves you needing a Band-Aid because your dull knife has sliced your finger.
Credit cards are so often used in ways that defeat those original purposes – building credit and emergencies. To get back to those originally intended purposes, we can do a few things.
1. Normalize not using credit. Having good credit is important. Good credit allows you to get a lower interest rate on things like a mortgage. It also can be a tool used in job hiring. When we use credit improperly, it hurts us for these important things. Use credit only for things already in your budget and in a way that ensures you have the funds to pay the balance in full every single month.
2. Don’t miss a payment. Set up automatic payments. Only 15% of people use the automatic minimum payment feature offered by the credit card. Use this feature. Don’t get dinged by missing a payment or making a late payment.
3. Define what constitutes an emergency. Create a savings account for these defined emergencies. Don’t use a credit card for an emergency.
Don’t let your credit card become that dull knife. If you are going to use a credit card, use it so it serves you. If you’re using it in a way that is hurting your credit score, it’s not serving you. If you’re using it in a way that it’s maxed out and you couldn’t even use it for a true emergency, it’s not serving you. And if you’re using it in these ways, it’s harming you even further. Beyond not getting to use it how you need it, you are being charged exorbitant fees and interest for this use. Sometimes we see our tools as expedient methods to achieve our short-term desires. Ultimately, however, when we misuse our tools, they hold us back from reaching our long-term goals.