Financial Strategy

No, You Don’t Actually Need A Credit Card

A common misconception that many have is that you need a credit card in today’s world. However, this could not be further from the truth. My personal opinion on credit cards is that you should never, ever use them. Will many things that they wouldn’t be able to survive without it, in fact, they would be in a better spot without one. If left unchecked, your debt can build up. Credit card debt stood at $808 billion on Sept. 30, the end of the third quarter, according to the most recent data from the Federal Reserve Bank of New York.

Later this year, credit card debt is going to hit one trillion dollars. You don’t want to be one of those people contributing to that. Jill Gonzalez, an analyst with WalletHub said that “it seems to say a lot of American consumers did not learn their lesson from the recession and are returning to living beyond their means.”

The “fact” that you need a credit card is magnified when your plan is to buy a house. Credit cards are well known as credit building (or destroying) devices and you need great credit to take out a loan. But you don’t actually need a credit card to build credit. Instead, and your bills on time, Iand having a good, consistent income are more than enough to get out a great loan.

But remember, a higher credit score means that you have interacted with debt more in your life. You don’t want to interact with that at all. Yes, while it might be a “necessary” part of Real Estate, you should strive to buy most things fully in cash. This gives you less debt to worry about paying off, and more time to focus on your capital building.

Many people also think that they are easier to use than cash, and are necessary for shopping online. Well yes, unfortunately, the first part of this is true. Credit cards are much easier to use than cash, and as a consequence, you spend more when using them.

Read this blog post here to find out more about the psychology behind spending and credit cards.

Debit cards can do all of the same things that credit cards can do while protecting you from debt. Like credit cards, they have card numbers, and you can input them into online marketplaces. However they do not let you spend over your balance in your bank account, so you are never able to go into debt.

Maybe you’re the type of person who thinks “I need a credit card for emergencies, and I’m not actually going to use it in the real world.” This is by far one of the worst mindsets that I have ever heard of. Instead of a credit card, you should have a bank account set up for emergencies, with at least $1,000 in it. You should not rely on a debt creating device to get you out of a tough situation – in the long run, you will be worse off.

Maybe some stores have a credit card that offers discounts on their products, and most credit card providers offer bonuses and rewards. This could be enough to lure you into getting a card. After all, credit card providers are one of the best marketing entities out there.All of these “bonuses and rewards” are designed to lure you into the credit card trap.

Instead of getting fake monthly rewards, and falling into a debt trap you should focus on building your wealth and receive real rewards in the form of rent money and dividends.

Unfortunately, credit cards have the stigma of the best credit builders out there, and it may very well be true. I personally don’t want to wait to pay rent, because I never want to be in that situation to begin with. I want to own a house by the time I’m age 21, and it’s difficult to do this without building credit.

Instead of using a credit card to build credit fast, there are some other methods of doing this, with less of a risk of going into debt.

And yes, while it would be best to buy the house in full cash, buying an investment house with a mortgage is like a shortcut. It enables you to grow your net worth a lot quicker, and if you manage the risk and debt, you can still be in a good position.

The highest recommended method of building credit is to take out a secured credit card. This card is back by deposit, and normally your credit limit is as much as you have deposited.

Unfortunately, while this may be the quickest way to build credit, it’s not the best way.

A secured credit card is the first step into taking out a real credit card. I don’t want to put myself in that situation. This second method is almost as effective and the secured credit card, and it’s a lot better.

Many banks have credit Builder loans, which do exactly as their names imply – build credit.

You take out a small loan account, usually $1,000 with no or low down payment. Then you pay back monthly, with a little interest. Think of the interest as paying the bank for your credit score. If you make your payments on time, this loan is a great way to build credit.

I feel that it’s also one of the safest ways. While you do have debt, you can simply move the loan to a separate bank account, calculate the interest, and move that to the same bank account. Then just don’t spend the loan or the interest, and pay it back over the lifespan of the loan. Then, you have no risk of missing any payments, and you easily build your credit.

 

However, I feel that you should only use your credit to take out a loan for an investment property, or piece of Real Estate. if you have the money in full, you should buy in full. This is always the best way to being financially secure. Only go into debt if you absolutely have to, and remember, stay away from credit cards.

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