Can Credit Cards Help? Wealth Builder or Destroyer
Credit cards represent many different things to many different people. For some, credit cards are a necessary evil and must be tolerated in order for consumers to function in today’s society. Others see credit cards as a product or service to be used and manipulated in order to provide the greatest benefit. Regardless of one’s opinion, credit cards are prevalent in the marketplace today and they certainly warrant discussion on their merits. The truth—instead of being at one extreme or the other—may lie somewhere in the middle.
When you apply for credit, you are basically accepting the idea of using debt to make purchases in place of cash. While the benefits of the arrangement include convenience, safety, potential to build good credit, and purchase incentives, the possible negatives are significant as well. Too much debt drags down good credit, using credit excessively can lead to overwhelming debt, and buying more than you can afford sets the stage for a long and painful journey where credit controls you rather than the alternative.
The key to credit seems to be management and understanding. Knowing how credit works and the best way to use it will help insure you make credit a useful tool and not be stuck in an overwhelming cycle of accumulating debt. Credit ultimately can help build wealth—both directly and indirectly—if used prudently and with discretion.
First, borrowing money is often how individuals with few resources get a start and leverage the minimal tools available. Credit provides access to necessary capital that can be used to provide a competitive advantage. Credit cards are a useful first step for people to establish the quality credit rating that will help them take additional steps down the road. Having good credit indirectly affects many facets of your life and can ultimately help you build wealth by helping you get a job, purchase affordable insurance, borrow money to start a business, etc. Student cards allow young people without credit to start building their credit history so they are ready when the time comes for a more significant step. Guaranteed credit cards are useful for people with damaged credit who are trying to rebuild a personal credit reputation. Those with decent credit can look for credit card fair credit which provides access to reasonable products at competitive rates.
Once credit is established, credit cards can be used to directly build wealth by providing access to cheap capital. Moreover, cards can be used instead of cash which protects cash and also frees it up to be used for other important wealth building tasks like running a small business or investing.
Finally, and maybe most importantly, credit cards can be used to build wealth by being a complement to cash. Credit is basically flexibility and it allows an investor to make more decisions, make them in a timely fashion, and also make them in the best order rather than in the order dictated by the amount of cash on hand. If leveraged correctly by the investor, credit can increase buying power and build wealth significantly quicker than if not used. Keep in mind, credit cards can just as easily cripple a user, so it is equally important to use credit prudently and only on a scale you can afford to repay comfortably. Use resources like the how to make a million dollars blog to give you perspective and advice on how others have made good use of credit or maybe have a warning on potential pitfalls. In any case, understand what you are using and take ownership of your own situation. Personal responsibility—and maybe a little good fortune—is ultimately the key to success.