cancel
Showing results for 
Search instead for 
Did you mean: 

Credit as a Life Saver (?)

kah-pas
Valued Member

Credit as a Life Saver (?)

Recently I've gotten three new credit cards (Discover IT Travel, Citi Prestige® and, today, City Custom Cash), and were given an automated CLI with the WF Amex Propel. I used to travel around the world all the time so collecting points / miles was not only fun but quite useful and effective savings. (my last two 1st class flights, purchased by miles, Frankfurt - Ciudad de Mexico and then again Frankfurt - New York would have cost, if purchased outright, north of $15K)

But, once the COVID hit, I've lost income, my investments took a severe hit of over 95% so, back in December 2020 I already had my bankruptcy papers all filled in and ready to submit. I only waited, hoping for a miracle. (and a bit of stuborness, did not want to accept a defeat as of yet) My credit score was at 519 at its ebb and the credit utilization went up to 114% at one point. I lived the last two months of that predicament out of my remaining credit, moving the meager funds to and fro.

That truly scared me, how one's situation could go south so fast. I had ups and downs in my life before, given my unusual life style (been to 83 countries, lived for at least 6 months at the time in 14) and investment (very risky) choices but not like this. Now I am creating a conservative investment portfolio to compliment the risky ones and would love to have as much credit at hand, if something goes wrong again, as possible.

I do not plan to rely on credit for rainy days should dark clouds arrive again but those several months of not having any real money available made me appreciate having credit available. What would you guys say? Any comments?

Happy 4th of July everyone!

Message 1 of 5
4 REPLIES 4
Brian_Earl_Spilner
Community Leader
Mega Contributor

Re: Credit as a Life Saver (?)

I think that people on this board forget that credit was created so that people could buy what they needed when they didn't have the money for it. It's definitely smart to manipulate it in such a way as to make it work for you, but you used it for what it was designed for. There's no shame in that. 




Message 2 of 5
tnhomestead
Regular Contributor

Re: Credit as a Life Saver (?)

To me, having ended up homeless at one time, cash on hand on my grubby little safe beats credit hands down. I don't have to pay back cash unlike credit and I refuse to do bankruptcy, not putting anyone down who does, just personal choice. That said, cash plus credit is a whole lot better. Better yet is a paid off or close to it home plus cash and credit!

Good luck and I hope it all works out for you!

Message 3 of 5
jmw1
Regular Contributor

Re: Credit as a Life Saver (?)

Cash is king, my friend. Your emergency fund should not be access to credit cards.

 

You should be building up a large warchest in cash of 3-6 months expenses depending on your job stability. Do not invest these funds in bonds, stocks, or crypto. Straight FDIC or money market funds even if they basically pay nothing. Then you start investing after your emergency fund is fully funded. But don't chase investments that went down big like crypto, penny stocks and options. Just stick with simple stock index funds. When dark storm clouds come again, you will be able to fix your roof, buy a new refrigerator, or if it's really bad make your rent/mortgage payment.  

 

Credit is bad because it saps your future income with monthly payments whether it's a 0% auto loan, student loans, or credit cards. The only good debt IMHO is a mortage to purchase your primary residence.

Message 4 of 5
Horseshoez
Valued Contributor

Re: Credit as a Life Saver (?)

This from the loyal opposition here...

 

I am not in the camp of avoid credit for everything but a home; following that advice for some can be costly, sometimes very costly.

 

Just two examples:

  • Using credit cards which pay rewards instead of debit cards or cash: A year ago today I opened the first "Rewards" credit card of my life, and have since opened two more.  As of this writing I have yet to pay a penny of interest, however, in exchange for using the credit cards I've earned nearly $500 in cash back rewards plus another $300 in signup bonuses.  My point here is, if you use rewards credit cards as you would use cash or a debit card, you will always come out ahead.
  • Using credit to buy a vehicle: Regardless of whether the vehicle is an older and well used $5,000 ride with hundreds of thousands of miles on the clock, or a brand spankin' new Porsche, you will virtually always come out ahead in the cash department if you pay for the vehicle with credit versus pulling money from investments which, with the exception of a short-term correction here and there, will always earn you more than you'll pay in interest.  Once again, using credit to buy a vehicle will cost you less than what you can earn with that same money sitting in an investment fund of some sort.

From my perspective, credit is a tool no different than a chainsaw, use it wisely and it will help you, use it incorrectly and it can hurt you, often badly.

I categorically refuse to do AZEO!

Message 5 of 5
Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom FICO receives compensation.