We have talked about emergencies a couple of times, and how to prepare for or get money quickly if a financial emergency comes up. Is there anything you noticed that I never mentioned? Credit cards.
Yep, credit cards. They can be useful for some things, but for the most part they are the Kryptonite of college students. So many people fall in the trap of using credit cards “for emergencies” and then not being able to pay them off, or they use them to buy things they don’t have the money for right now. I was one of those people. Let me tell you the consequences of not having an emergency fund and relying on credit cards will haunt you.
First of all the interest will grow and grow and grow. Imagine only spending $500.00 but actually paying $1,500.00. Imagine not being able to make the minimum payment and being slapped with over the limit fees (as high as $50) and late fees (as high as $50) every month. Imagine your credit score flushing down the toilet every month. Because your credit score is bad everything else gets more expensive, your car insurance goes up, you end up paying higher deposit fees when moving to a new apartment, if you get a car loan your interest rate is far higher than others and you pay much more for the same car.
So what is a good use for a credit card? They are useful for making purchases online, paying for things like plane tickets, small recurring expenses. The key is that you never ever make a purchase with a credit card if you don’t already have the money to pay it off immediately. If you can’t make the purchase with money out of your bank account then you shouldn’t make the purchase with your credit card. Responsible credit card use can build your credit score and help you make larger purchases later in life (like a mortgage, auto loan, etc.).
Trust me, grow an emergency fund, and only use your credit card if you already have the money to pay it off in full.
