- Personal Finance
Using Credit Cards Wisely: You can make money with them
We live in a capitalist world, where services, products, and everything else we need can be bought. In this system, credit plays an important role. It allows we to take control of something that we need right now, without having to pay for it. Consider, for example, what would someone do if he or she needed money to create a new business. If there was no credit available, then it would be hard for anyone to create any business opportunity. The economy would stale as fast as you can count to three.
This is the main reason why it is important to keep a good credit history. You can use your credit as a tool to build wealth, not only to get in debt. Sadly, many people never learn this important lesson. They believe that having credit is just an opportunity to satisfy their consumerist desires.
Using Credit Cards Wisely
If you think of the things you can buy with credit, you will see that they can be easily classified into two very distinct areas: in the first area, you have things that you buy and that can in some way improve the quality of your life. In the second, there are things that will be coming to your life and satisfying your short term needs, but that in the long run can make your life more miserable.
There are some things that can be easily classified in the first type. For example, if you are a business person, buying something for your business that would produce money directly is certainly a good investment. For example, for the cab driver, a car is a necessary investment, which will hopefully pay off sooner or later.
When the Credit Card is a Bad Investment
In the other hand, there are many things that can have the opposite effect. For example, if you use your credit cards to buy stuff that will not contribute for your long term wealth, this is a bad use of you credit. For example, buying unnecessary food and entertainment in credit cards can be nice in the short term, but will prove disastrous for the future.
Of course, there are expenses that are hard to classify. For example, buying nice clothes can be seen as a bad investment. However, if this will improve your status as a professional, it might just as well be seen as an investment.
Deciding When to Use Credit
Another decision that we need to learn when using credit cards and other forms of credit is when to use it. Certain people, for example, think that they should always use cash to buy what they needed. While this may be a very wise decision, it is not always so. If you are buying something for your own consume, it is always better to pay cash for it.
However, if you are buying something that will increase in value, it might be wise to use borrowed money, even if it is from a credit card. The reason is that, if you borrow money, you can get more of the thing that generates money for you. For example, if you are on Real Estate, you can use money borrowed from banks to finance your properties. This way you can buy more properties that you could if you used only your own money.