Beware Of Credit Card Drawbacks Beyond Just Fees
You need to be informed about credit card drawbacks. Financial advisor Suze Orman recommends that every person has an emergency fund equal to nine months’ worth of pay. Right, you think, nine months? Is she crazy? Well, Suze used to recommend six months, but after the recession of 2008 hit many people saw that it took more than six months to find a new job, so Ms. Orman now recommends nine months’ worth of savings to help you and your family weather the storm if things get bad or you lose your job. And of course, you should avoid credit card debt for the same reason, that you could lose your job and not be able to pay the card.
You might be tempted to think that if this happens you will just live on credit cards, that there are no credit card drawbacks. But that’s a poor plan and here are a few reasons why:
Using a credit card in an emergency may be a necessity. But avoid it if you can. All this does is push today’s problems off to tomorrow, and with interest included makes them cost even more.
2. Credit cards can reduce your credit or close accounts.
When it comes to cards credit card negatives include the fact that credit card companies have many processes in place to protect themselves. They know that if you get into financial trouble your credit card usage may change suddenly. They look for it and it sends up a red flag. What this means is that if you have great credit, with a lot of open credit cards, and are barely using your credit, and then all of a sudden you are charging groceries and gas and everything in between the credit card companies may notice. And, even if you have never been late, they may reduce your credit limit simply because they see that you suddenly seem to “need” your cards and it scares them. They go into protection mode and try to cut you off – and they have the power to do it.
While you can sometimes call credit card companies to negotiate a lower interest rate or ask them to remove the occasional late fee, as you can imaging calling them to say that you lost your job and need the credit card to live on and won’t they please not close it might not meet with a positive result. You need to make other provisions because there are just too many credit card drawbacks.
Preparing for the Future
If you wonder why you should avoid credit card debt then you have probably not sufficiently educated yourself. Credit card debt costs money in interest, it can lower your FICO score, and it lowers your available credit in case you really do need it.
Suze Orman is certainly correct that the more money you can save up in an account that you can easily access for emergencies the better. But don’t hurt your family by thinking this is all or nothing. If you think that nine months’ worth of pay is a ridiculous, impossible amount for you to save then don’t stress out – just save what you can. Try for, at a minimum, three months of your pay in emergency cash. This would be enough to at least feed your family and hopefully get you through. Just don’t sacrifice your future by living completely hand-to-mouth or counting on credit cards to bail you out because they might not be there when you need them.
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