About to make a purchase using a credit card? Hold up a minute. You could be about to commit an act of credit abuse: using credit to make purchases you don’t actually have the money to pay for.
I’m sure you’re thinking, “Isn’t that what credit cards are for?” Actually, no. While credit abuse is a socially accepted and commercially encouraged habit, it often leads to chronic debt, unchecked impulse spending, shopping addiction, and other behaviors that will devastate your finances and your life.
If you are serious about avoiding credit abuse, here are some things to consider before you break out that plastic.
Think before you swipe!
So many of our problems with debt could be avoided, if we would just do one thing before pulling out the credit card: THINK.
Too often, we use credit cards without truly considering the consequences. We don’t even consider whether borrowing money—which is what you are doing, when you are using credit—is the best way to finance the purchase of an item. With that in mind, here are some questions you should ask yourself, whenever you are tempted to use your credit card to make a purchase.
Have I budgeted for this purchase?
If you have, why would you use credit to pay for it, incurring interest charges, as opposed to paying cash? If you haven’t, it also means you haven’t budgeted for the interest payments that will accompany your purchase for as long as you carry a balance on your card.
The proper use of credit is for convenience, to avoid having to carry around large sums of the money you actually have—not as a substitute for the money you don’t have. Unfortunately, most of us have been conditioned to use credit as a way to borrow money against future income. This is credit abuse, and it is why many of us never seem to get ahead financially, especially when that income is disrupted.
If you’re using your credit card only for convenience sake, then your next credit card payment should be an amount equal to or greater than the amount to be charged to the card for the purchase, not just the minimum payment due. If you can’t do that because you haven’t budgeted for the expense, and you don’t actually have the cash for the purchase, put the card away. If you pay cash, you can at least cut back on another expense to make up for the unbudgeted purchase.
Why not save for this purchase, instead of borrowing money to pay for it?
If it’s not worth budgeting and/or saving for, it’s not worth borrowing (via a credit card with double-digit interest rates) to get it right away. It’s important for you to not use credit to finance living beyond your means.
If you insist on spending more than you make, you will never stop paying for whatever you get. Credit abuse happens when your need for instant gratification overwhelms your capacity for healthy financial decision making. If you’d rather use a credit card with a 15% interest rate and make minimum payments of $20 for 11 months, than save $50 a month for four months to make a $200 purchase—you have an immediate gratification problem, and it’s hurting you financially.
Credit cards are a financial tool of convenience, and convenience costs.
Between interest payments and other fees, most of us are paying dearly, even with cash-back “bonuses,” mileage points, and other incentives to get you to choose plastic over paper. If you are using your credit card to purchase something you can’t afford to pay cash for, that is credit abuse. Don’t do it. Before you break out the plastic, THINK.
Black Enterprise Executive Editor-At-Large Alfred Edmond Jr. is an award-winning business and financial journalist, media executive, entrepreneurship expert, personal growth/relationships coach, and co-founder of Grown Zone, a multimedia initiative focused on personal growth and healthy decision-making. This blog is dedicated to his thoughts about money, entrepreneurship, leadership and mentorship. Follow him on Twitter at @AlfredEdmondJr.