College Connect: Buy Now, Pay Later

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Sophia Kunthara, Student, Arizona State University, Walter Cronkite School of Journalism and Mass Communication

fullsizerenderThe simplest lesson in personal finance: don’t spend what you don’t have (or won’t have). This is true for borrowing money in the form of loans and for credit card spending. Taking out a loan and using a credit card can have enormous benefits, but can easily be a trap for debt as well.

Credit cards are the most tempting form of payment–“buy now, pay later.” But what most people don’t realize is that credit cards aren’t free money, they’re just another form of payment for money that a person should have.

The best personal finance lesson my parents taught me was to be careful with credit card spending, and not to spend more than I would be able to pay off. The principle they lived by was that a credit card was an alternate method of paying, replacing cash they already had. If they were to buy something using a credit card, they should have money in the bank to pay off the balance when the credit card bill came in. It shouldn’t be a way to bridge the gap between monthly expenses and actual monthly income.

Using a credit card is a great way to build up credit, get airline miles, and unlock other benefits. But the perks only apply to people who pay off their bill on time, not people who spend money they don’t have, fall behind on their bills, and rack up debt. My parents always use their credit cards, and it has helped them build up their credit and tap into the benefits of a credit card, but only because they have always paid their bills on time. If you slip up with credit card spending, you could also be hit with extra late fees on top of your debt.

 

Loans are an option a lot of people take when going to school or buying a car or house. The same principle of credit cards applies–don’t spend what you won’t have. Don’t take out a loan for a house if you won’t be able to afford the monthly payments for or a car that’s out of your price range. Live within your means, because it’s a lot better than falling behind on payments and hurting your credit score.

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