Relying on Credit Cards as a Financial Safety Net Could Be Dangerous Its hard to believe that the world used to be free of credit cards. Credit was earned based on your reputation within the community. But once these little pieces of plastic took hold, there was no turning back. There are enough credit cards to give everyone at least five, and applications are flooding in to the companies faster than they can churn out the cards. Were now surviving on credit, and whenever our personal finances topple, we turn to charging what we need to get us through the tough times. When corporations go under or layoff rumors begin swirling, families are often shocked to discover theyve stashed away little to no savings. Theyre simply not prepared. Without a cash savings, you cant even cover the essentials you need during a financial crisis, such as food, payment of utility bills, or medical expenses. This causes a great deal of emotional stress and the short amount of time you spend charging on credit could jeopardize your entire future. We tend to live in the present, and very few citizens actually consider the danger of not being prepared for the future. But anything can happen in an instant that could put your finances at risk. What if you or your child suddenly had a medical problem that required you to miss a lot of work, or even have to quit your job? What if one spouse is suddenly laid off or fired from the workplace? The electric company wont hold off on sending out your bill, and you have to have essentials like food and medications. If youre not lucky enough to be growing a magical money tree in your backyard, you probably feel like credit is the only way to save yourself from financial ruin. The key is to start planning now. Dont wait for disaster to strike. You may not realize it, but you can sock away enough money to tide you over for three months just by putting a small 10% of your paycheck in a savings account. If your income has slowed down or come to a complete stop, you may not be able to pay your credit card bills especially when you compare having food on the table to paying even the minimum on your credit card thats due. If you miss a payment, you may not be able to continue charging on the credit card and the company will most likely hit you with a $39 or higher missed payment fee. If youre close to your limit, and that fee strikes, then theyll also levy a $29 or more over-limit fee, not to mention raise the interest rate for your charges as a penalty for not being a good customer. Want to hear something shocking? Even if you miss the payment on only one out of your twelve credit cards, as soon as the others get wind of the situation, which they will since they see your credit report routinely, they can also up your interest rate under whats known as universal default. So while youre sitting at home struggling with your economic situation, you may open your mailbox one day to find that the 6% interest rate youd been paying on that $1000 limit has now been raised to 24%. Thats not just for new purchases, either. The new interest rate will be levied on all of your past purchases even the school clothes you bought four years ago that havent been paid off because youve only been able to make minimum payments on your balance over the years. The statistics are shocking. Americans alone forked over $90 billion each year on penalties and interest. Think about what that money could have gone to your retirement on the shores of a beach in Mexico, your kids college education, or just financial security and peace of mind. Dont get me wrong not everyone is sad about this situation. Credit card companies love it! Although they balk at people missing a payment, theyre really gaining money off the situation whenever youre in a dire money situation because they know theyll get more than what you would have paid at a later date. More and more families have to turn to severe help to get out of their credit ruin. Most file bankruptcy to wipe away their debt, but new reform even makes that issue more complicated and difficult nothing you want to face when youre struggling in life. If you get into this situation, be sure to communicate with your credit card company. Call them immediately and try to arrange for alternate payments for a period of time. They highly respect anyone who goes out of their way to contact them and let them know whats going on. First, ask if they can lower your minimum payment so that you can possibly make ends meet for a while. Ask the representative to waive the penalty charges like over limit fees and missed payment fees this month. Theyre usually allowed to remove these at least once - you just have to know to ask, which most people dont. Find out if you can just pay the interest on the account for now. Credit card companies usually will accept some payment over no payment. If the representative cant authorize your requests, ask for a department manager. Dont allow your financial situation force you into bankruptcy or a mountain of debt youll never be able to crawl out of. Prepare ahead of time even when things are tight. As little as a dollar a day can add up if thats all you can afford and be sure to put it into an interest-earning account in the bank whenever you accumulate the minimum it takes to open an account. This way, youll be ready to stay afloat if your income begins to sink below what it takes to manage your affairs. |
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