Beware the Dangers of Credit Cards When You Don’t Have Savings
It’s no secret that America has a problem with credit card debt. Revolving consumer debt, the bulk of which is for credit cards, now totals over $1 trillion in the United States, according to the U.S. Federal Reserve. That number is expected to keep climbing.
Those in poverty are not excluded from this crowd, either. I’ve personally experienced the dangers of credit cards — how they can offer the illusion of financial freedom, only to become a hole that seems impossible to climb out of once your circumstances change.
The Dangers of Credit Cards: Learning the Hard Way
I was doing well: keeping my balances below 30 percent, negotiating down my interest rates, and product-swapping up the ladder to cards that offered higher limits and better rewards programs. Everything seemed to be going great, and my credit score reflected the work I was putting in. But then my temporary summer job came to an end. After several interviews and no callbacks, I was left unemployed.
I wasn’t as financially well off as I’d thought, because even though my credit score was good, I didn’t have any savings.
As soon as I lost my job, the expenses racked up. Statements started flooding in, and I had no way to pay them.
Sent to Collections
I tried to keep up with what little money I had in my checking account, and I sold off some of my assets to help make the payments. Unfortunately, it wasn’t nearly enough. Eventually, my accounts were closed for nonpayment, and every company I had a balance with sent me to collections.
I felt defeated. Talon Lister, the man who advised all of his friends and family on how to build and strengthen their credit profiles, had just singlehandedly destroyed his own profile in a matter of months.
I knew how to maintain good credit, but I didn’t have the income to properly do it.
This is when things got scary. The calls started pouring in. We’re not talking one or two calls a week — we’re talking 15 to 20 calls a day. The creditors wanted me, and they wanted me badly.
I didn’t answer because I knew I just didn’t have anything to give them. What little money I was able to make from taking freelance jobs (and from my business, which ended up failing) was going toward the bills. I was living with my mom at the time, and things were already tight around without me there. When I moved back home after deciding to drop out of school, it certainly didn’t get any easier for her financially.
I guess the moral of this story is that before you begin building your credit, you should build your savings. At the very least, do both simultaneously. If you lose your job, things can get very hairy very quickly, even if you know what you’re doing.
When left unchecked, debt can ruin your credit score, and collections agencies can actually take you to court. You might even face wage garnishment or a court-mandated settlement in the creditor’s favor. Don’t make the same mistake I did. Know and plan for the dangers of credit cards.