Credit.... the very concept scares some people and their are plenty out in the world abusing its power. In fact it seems like the world itself is run on credit.
It has been just over 6 months since my recent graduation from Howard University. How did i know??? Because ole Sallie Mae has pushed her way back into my life asking for the money I had borrowed from to fund my degree.
The other day i actually made my first of many payments to ole Sallie. I tweeted about how it stung a little to see the funds exit my account and one of my friends promptly responded how such action of actually paying my loans back made me a better man.
This struck me a little bit. I was only doing what I said i would do when i got the loan. Now the only reason I had to sign my life and first born away to ole Sallie, like many others, is because neither I nor my family had the funds immediately available and scholarships just weren't covering all the costs for my education. So the decision was made to invest in my future and so far i must say it is paying off.
Essentially it boils down that i used the credit system to make an investment in myself and now I'm just paying back the money i borrowed. Unfortunately there are many out there using the credit system for others uses and finding themselves in trouble. According to the American Bankers Association the average family in 2009 carried $8,000 in credit card debt.
Because of this there are some out there like David Ramsey (Truth About Credit Card Debt) who feel that there is no way to use a credit card responsibly. In a story on CNBC (click here) a study recently released by credit reporting agency TransUnion found that 8 million Americans have stopped using credit cards over the past year. Some feel that this is a step in the right direction towards Americans getting a grip on their debt problem.
Is it really a solution though? It's only a problem because we have been irresponsible and made it one. I have to argue against Mr. Ramsey here that there is a responsible way to use credit cards. It simply goes like this: DON'T SPEND WHAT YOU DON'T ALREADY HAVE!!! Now there are some exceptions like borrowing for a college education and serious emergencies but it doesn't get much clearer than that.
Unfortunately a lot of people, especially in the urban community see credit as free money. With a little bit of credit one can go purchase the items they want whether they have the funds or not and appear to be living large and temporarily satisfied. Trouble arises when the credit companies like Sallie Mae come knocking at the door asking "Wheres our money?".
We've got to learn how to use the tools around us for benefit and to get out of the practice of using thme just because they are there. Let's be a little responsible and let's see where we end up because of that, you might be surprised...
When my father explained to me how he used credit it seemed so simple and I have since wondered why more don't follow such an example. Here i'll share it with you:
1. Don't spend what you already don't have. If you only have $100 don't go charging $200 or if you know your only bringing in $100 a month, after paying bills responsibly, don't go charging more than what your bringing in. Why? Because when it's time to pay there won't be a problem of trying to figure out where the money is going to come from, u'll already know.
2. Credit when used effectively can actually make you money. How? By charging your purchases and paying bills with credit it allows you to keep the money you already have set aside for those things in your account. And by keeping more money in your account longer it allows you to earn more interest.
Simple right???
Now i know things aren't perfect with interest rates because of the economy and what not but gaining a measly 3% is better than nothing at all right? It all adds up in the long run...
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