Credit Cards are easy money. Or that is what credit card companies want you to think. Unfortunately, the money is easy for them, not you.
Are credit cards good to have? Yes and no, but probably not for the reasons you are thinking.
Most college students have the idea that in order to build credit, then they need to have a credit card. Let's deal with this first.
Why do you need to build credit? Many people would say they need credit to buy a car. Others, thinking long-term, would say they need credit to buy a home.
Well in another post I dealt with buying a car without credit (and never having to pay interest). To buy a car without credit, you have to buy a car with cash. Your first two or three cars will probably not be your dream car. That's okay, you have plenty of time to save enough for that.
Something I did not tell you about buying a car with cash and paying yourself the car payment is what to do with the money you are saving. Dave Ramsey suggests putting the money in a good money market account or a savings account. Make it earn interest for you.
You can also put the money in a CD and let it earn a slightly higher rate. With a yearly CD you can roll the money over and add additional funds to it.
But what about a home? You do not have to buy a home. Why not invest in a piece of property? Why not save enough money to buy a piece of property, let it increase in value, and then use it either to build a home in the future or sell it to use for a down payment on an affordable home?
Building up credit is best accomplished by building up assets. Credit is established upon ability. The more assets you have the more you have to leverage with. To buy a home you should wait until you have at least 20% of the homes value in cash and can easily maintain a 15-year mortgage payment. That payment should never be more than a 25% of your income!
If you cannot do that, then you need to save more for the down payment. Do not get stuck paying for a 30-year mortgage. But here is another suggestion.
Pay 20% of the home price for a down payment, get a 30-year mortgage but pay the same amount as if you were paying for 15 years. I suggest this only because it is a suggestion from Crown Ministries.
The whole idea is to keep yourself from paying too much interest. Why? Interest is lost money. It does not increase the value of your home, just the bank account of the mortgage broker. Just think, paying 6.5% interest on a 85,000 home will cost you 2.25 times more than the homes value. That means you will pay $198,000 over that 30 year period which means you pay $113,000 more than the home is worth.
Building credit with credit cards does one thing - it teaches you how to stay in debt! Credit cards cheat you out of a comfortable lifestyle. If you cannot pay cash for it - YOU CANNOT AFFORD IT!
Why am I shouting? Because you need to understand this. Do not get trapped by credit. If you lose your job and cannot pay for your car or home - you lose your car and your home! But if you paid cash for you car, it is still yours.
Do not become the slave of the banking industry. Save, invest, and pay cash. You will thank me in a few years.
Oh yeah, the only good thing a credit card is for is to make reservations and some purchases online. But then again, you can do that with a debit card also.
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