The Necessary Evil of Credit

A self-governing individual must achieve some degree of financial security to maintain sovereignty. Having to explain ones spending to a parent, significant other, financial or social service institution, or a friend you owe money to is not exactly freedom. I know, for I have had to answer to some of these aforementioned entities myself. Learning the skill of managing money and credit are vital to ones financial and emotional independence. It takes a lot of self-discipline to live within your means, accept accountability for your mistakes and vow to never make them again.

Establishing credit is vital to achieving the ability to navigate one’s own destiny. Without credit, or poor credit it is difficult to obtain a home loan, car loan or any other line of credit without a cosigner. Credit utilization is a huge factor in FICO scores and without utilization it is difficult to achieve a decent credit score.

A great way to obtain credit without a cosigner is to obtain a secured or unsecured credit card from your bank or credit union. Your money securing the credit is placed on hold in savings, and most personal banks will charge you a lower interest rate than a large conglomerate. It is often recommend to use only one-third of the credit, and pay all, or most of the balance off every month to minimize paying interest. Establishing an excellent payment history can increase your score rather quickly.  When your score rises you should apply for an unsecured card with the best rewards, minimal or low annual fee, and a decent credit line to increase your score further.

Once you obtain a card with a good reward structure that suits your needs, you can free up your cash flow by using the card to take advantage of the reward structure your particular card offers, as well as paying bills due between paydays. This avoids late fees, utility shut offs, or running out of gas between paydays. This offers you the flexibility of paying it off every payday, or floating some of the balance if needed if unforeseen circumstances arrive.

Credit cards can also cause a lot of problems. Late fees vary from card to card, and can add up, thus cutting your ability to save money or pay down your balance. If you are more than thirty days late on a payment it will also lower your score and affect your ability to get credit in the future, and having to make many payments with interest to several credit cards can cause a lot of debt and stress. These situations will suffocate your monthly cash flow and hinder your ability to save.

Following this advice may save you the pain I’ve suffered in the past due to irresponsible use of credit. A credit card is a financial tool, not a ticket to spend on things you can’t already afford. If the expense is not already in my monthly budget it does not go onto my card, and I also try to limit its use to the rebate categories as these are expenses I will have anyway, and I might as well get rewarded for them. I pay off my balance every payday and avoid interest charges, and if I have to carry over a portion of the balance because of an unexpected event to maintain cash flow, I pay it off as soon as possible to minimize the hit on interest as well as my line of credit.

Here’s to you on your journey to self-governing! Free thought and an independent lifestyle are the building blocks to happiness. I wish you all joy and success.

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