Credit Card
From Debt Free Dude
Credit Cards are a means of purchasing items and paying for them gradually, using a third party to borrow the funds from. Credit cards are a very useful tool if used properly. However, they are fast acquiring a bad reputation because of their prominent involvement in accumulating large amounts of debt. Credit cards, in themselves, are not bad. Unfortunately, to be able to use a credit card as it was first intended, a person must practice rather rigid self-control in utilizing the card for purchases. History shows us that it is all too easy to live above our means.
During the mid to late 1920's, the United States was then in the era that is now known as the "Roaring Twenties." During this time, big-name gangsters and the mob came into prominence largely because of the prohibition. Illegalities were certainly not uncommon during the twenties, nor were they especially looked down upon by the majority of the populace of the United States. Many people broke the Prohibition Laws of that time by frequenting "speak easies" and other places that illegally sold alcohol. With these illegal actions came great expense. Since the famous gangster Al Capone had a virtual strangle-hold on the illegal alcohol market, he could set prices pretty much where he wanted them. For Americans that were already addicted to the substance, this became disastrous for their financial state of affairs.
Another factor that contributed to the great amount of debt many Americans accumulated during this time is the general lifestyle of the time. Those that were considered to be worth meeting in social circles were expected to throw lavish parties and dress in the latest styles, whether they could afford it or not. As expenses rose, so did the amount of speculation that was going on in the stock market at the time. Many put all of their financial assets into the stock market in the hope that it would bring a return as great as had been coming back to them for the past decade. Sadly, the stock market crash of 1929, known to the world as Black Thursday, occurred. This economic disaster caused many of the formerly wealthy Americans to lose everything that they owned. Many moved all over the country in an attempt to escape the poverty and trouble of their home towns. However, they soon found that jobs were few and far between and that the road to recovery would be long and hard.
Most historians agree that an indirect cause of the depression was the way that many Americans handled their finances during the previous decade. Because most of those that were in debt could not pay back what they owed, this put the economy in even worse shape than what it was.
Though credit cards are very useful for emergency situations and other absolute necessities, it is best not to use them on an every day basis unless the user has a very strong sense of self-control and would not use the card to live above his or her means.
One of the advantages of using a credit card over a debit card is the way in which your finances are protected. When using a debit card, if a users PIN number is stolen and the card is used by the thief, it can be very difficult to regain the money that the user lost during the theft. If a problem such as this one occurs for a credit card user, the user must simply inform the company within a certain time frame. Usually the user is not held accountable at all for the identity theft, but if the user fails to report the theft within the allotted time frame, the company usually charges a fairly small amount for the infraction.
The downside of credit cards occurs when people start carrying a balance. The interest charged on the balance carried is the primary way that credit card companies make money. Most states have usury laws that cap that make it illegal to charge over a certain percentage of interest. However, credit card companies are exempt from those laws. As a result credit cards are one of the most expensive ways to borrow money.
Normally when someone is trying to get out of debt, paying off the credit card with the highest interest rate first is their first step. The Debt Snowball takes a different approach based on getting more psychological momentum.
