This is a guest post.
On this topic, I know of what I speak. I fell into the credit-card trap almost immediately after graduating from college. I had heard all the good advice from my parents, and from financial gurus in print and on the radio. The conventional wisdom was clear, if mixed: “Debt is evil, and to be avoided. However, building credit will be good for your long-term future when you decide
to buy a house, car, etc.”
Alas, knowing something is true on an intellectual level, and having it proven to you by direct, real-life experience, will always be two different things. So what did I do? Well, as a very underemployed young adult, I subsidized the maintenance of my rather excessive lifestyle through plastic. I assumed that that high-paying job was just around the corner. It wasn’t. I even received little cash-advance “checks” in the mail from my credit card company, and used them to pay rent (in Boston!) on a few occasions. I wince just remembering it.
Eventually, like many other members of my generation, I was forced to move back in with my parents and regroup. Now, I get along well with my family, but at age 22, this is not a natural situation. Suffice it to say that for one thing, whatever love life I had was essentially snuffed out. I tutored SAT takers part-time for quick cash, eventually saving up enough money that, when I finally found a full-time job in another city after about a year of looking, I was able to make that move and stand up on my own two feet.
I slowly and painstakingly clawed my way out of most of that debt, until I was accepted to a prestigious grad school (which, nevertheless, would not be setting me up for a particularly lucrative livelihood). What credit card balances I had remaining, I paid off with student loans, essentially rolling interest-bearing debt into more interest-bearing debt. And so here I am, paying those down now. Don’t let it happen to you.
Limit yourself to emergencies and the occasional vital indulgence (like a vacation)…and be careful about what expenses you define as “emergency” purchases. Credit is not imaginary play-money. It’s a way of paying even more later.
This makes sense in some situations, and is not necessarily fatal when you’re just starting out in life. If you’re a twenty-something reading this now, I certainly hope you will be making more money in a few years than you are now. Hopefully, as well, the Fed’s quantitative easing will create just the right amount of inflation, devaluing Americans’ debts to a manageable level. But who knows. Better safe than sorry.
Learn the lessons of wise personal finance now, and you won’t have to do it the hard way later. Learn from my lessons, and you’ll be laughing your way to the bank while I work my booty off to pay down these student loans. I won’t begrudge it! I’m happy to play the Jacob Marley to your Scrooge, except in reverse. Here’s my spooky warning: be tighter with your pennies!
Stella Walker is an avid freelance wordsmith who often writes about business issues for creditscore.net. She welcomes your comments and questions.