The following is a guest post.
In the mission to attain financial independence, you must consider every aspect and road to your goal. You have constantly evaluate your financial position, and any adjustments you need to make along the way. The trick is to be dedicated to your goal as well as remain flexible to take advantage of opportunities or to make adjustments advantageous to your financial position.
It doesn’t have to be complicated, but you do have to be consistent in your actions. One of the best things you can do to increase your personal wealth is to assess your debt load and make some hard decisions about how to handle it. Although credit cards are an important part of your economic life, the truth is there is good debt and bad debt – and credit cards are generally categorized as “bad debt”. This is because credit cards can drain your funds without presenting any kind of return.
The notable exceptions to this are credit cards with cashback or reward programs. If you travel a lot for business or leisure, or if there are purchases you make regularly such as gasoline or groceries, if handled properly a credit card can actually pay dividends. However, such cards are not typically low APR credit cards, and if you don’t pay off the balance in full before the billing cycle ends (which is usually 25-30 days) you will end up paying much more than the savings in rewards is worth. [Kevin] If you’re not going to use the points regularly, it’s also yet another card to carry around in your wallet or leave at home.
Furthermore, miss one payment and you are facing steep late fees and a possible increase in your interest rate. The next thing you know, you’re in a credit card black hole of debt, and it’s very difficult to dig your way out once that happens. In this scenario, it’s a good idea to take a look at 0% balance transfer credit cards, and transfer the accounts carrying the highest interest rate to the 0% rate. Direct your focus to paying off the cards with the highest interest rate first – those are the ones costing you the most money.
The question of whether or not credit cards can help grow your wealth is tricky. It is possible to receive good returns on a credit card, but unless you are able to resist the temptation to spend and are able to pay close attention to how your cards are managed, credit cards are not a way to grow wealth. You’re better off establishing an emergency fund and paying cash as you go. Final answer: no, credit cards cannot reliably help you grow your wealth.
[Kevin] Credit cards can be very convenient, but with convenience comes responsibility as well. It’s too easy to simply defer the balance to another day. These 0% balance transfer cards can be a good tool if used to start getting on the path to paying down debt, and not simply as a way to carry your balance a little bit longer. You should also check the terms and conditions on the card to ensure that you won’t be in a worse spot than before, and take care to not miss a payment which will probably increase your rates.