Is there anything worse than being in the red? Debt of any kind is something we would all like to avoid, yet it is unavoidable at the same time. So, we continue with life, trying as hard as possible to eradicate the debt before it bite us on the backside. But, in the fight to clear our finances, we lose track of one thing: debt isn’t the end. Yes, whisper quietly, but certain arrears like an overdue credit card balance don’t have to instill panic. Do you want to know why? Okay then, just take a look at the reasons below.
Can Be Used Positively
Let’s face it – there are some things most of us can’t afford. Take a new business as an example. If anyone one of us wanted to create a company, the finance would be a sticking point. After all, most people don’t have tens of thousands of dollars under their mattress. A credit card, however, is a quick and accessible form of finance which is available to a wide range of people. If we were to use the money for this purpose, the debt wouldn’t be as great for two reasons. Firstly, it helps us achieve our dreams, and secondly, it may pay off tenfold in the future.
Boosts Credit Rating
There is a myth that credit card debt only makes a person’s credit score worse. However, the reality is far different. As long as we pay off the minimum amount each month, there is no adverse effect. In fact, it helps people like you and I to build up a solid score. There are caveats, such as not exceeding the card limit as they calculate the ranking through the credit utilization rate. But, if we can avoid these pitfalls, the debt works in our favor in this sense.
A mortgage or a car loan is a debt which carries a security. In layman’s terms, it means that the lender can take the asset should the person default. For obvious reasons, there is a lot of risk in going down this path. Credit card debt in arrears is different because it is a personal loan and doesn’t follow the same rules. Sure, some facets make it dangerous, such as the rate of interest. But, there is no need to lose anything valuable should the loan go bump in the night. In fact, filing for bankruptcy will clear the balance forever.
Even when the favorable terms of a credit card run out, there is always another option. It is known as transferring the balance, and people exploit it on a daily basis. Quite simply, rival companies allow us to apply for another card and take the existing debt. Although it sounds self-perpetuating, it’s a savvy way to avoid fees, penalties, and interest. As long we understand how to use a credit card effectively, there is no need to be scared of the potential risks.
Indeed, the more people embrace them, the better off they are because fear keeps them alert.
Photo Courtesy of Hloom via flickr / CC BY-SA, 401(K) 2013.