There are very few people who can dispute the fact that credit cards can be dangerous to one’s personal finances. The fact that the average American household has nearly $16,000 in credit card debt in 2012 should show this pretty clearly. For that reason alone it would be pretty easy to just say that credit cards are evil and no one should ever use them. In fact, Dave Ramsey says that using credit cards is similar to holding a snake and no matter how good you are with them eventually they’ll bit you.
There was a time when I shared Dave Ramsey’s opinion. About three years ago we even used his advice to climb my way out of debt. With only 20% of the debt remaining we were pretty close to having no consumer debt. Then one December day all of our hard work began to unravel.
It was a stormy day in early December. For a period of seven or eight hours rain came down in nearly horizontal sheets. When I had left for work that morning everything was perfectly fine in my house. However, when I returned home from work there was a puddle in my bathroom and in my basement. Apparently there was a leak around my bathroom’s vent stack and the water had driven itself under the roof shingles. There may have been more vulnerabilities in my roof, but I didn’t waste any time and had a roofer out the next day.
We had three bids for the roof and chose the contractor that my wife’s aunt had recommended. Everything with the contractor went fine. We had the entire roof ripped off and replaced the gutters. When it was time to pay for the roof the problem arose.
Our $1,000 “baby” emergency fund that Dave Ramsey recommends you have while paying off debt was not enough to cover the costs. We also didn’t qualify for any type of home equity loan and the bank of “mom and dad” was not an option. So….we had to charge it. I felt pretty lousy about charging the credit card for two reasons: A.) We were almost out of credit card debt. B.)The contractor didn’t add the transaction cost for running cards to the cost of our roof and it ate into their profit. ( I know that most people wouldn’t worry about something like that, but I really didn’t want him to lose money on the project. If we had been able to pay cash he wouldn’t have had to pay the transaction fee).
No Financial Planning
At first I was pretty upset because I had used credit cards. At this point in time I had believed them to be shackles of financial bondage. However, when I reflected upon my situation I knew that the credit cards were to be at fault. Truthfully they weren’t to be blamed for any of my consumer debt. We had never used credit cards to cover our daily purchases.
There were only four times when we ever used credit cards; savings/rewards, online purchases, hotels, and emergencies. We always paid the card off in full the day after the purchase. Can you guess the only times we couldn’t pay the cards off in full? If you said when we used them for “emergencies”, you’re right! Car repairs, required house maintenance (burst pipes, leaky roofs, nothing cosmetic) and other unexpected expenses would go on the credit cards because we couldn’t afford the cost of the emergency.
The credit card debt wasn’t coming from living beyond our means in the traditional sense. We were accumulating the debt because we were not planning ahead. There was no budget in our household. No saving for emergencies or squirreling away money for inevitable expenses like the roof.
In my situation it was not the credit cards that led to our using them. The problem for us was not having an emergency fund. Up until about five years ago the idea of an emergency fund had never sunk in. The concept of having a financial safety net was not something that my wife and I were ever taught. Perhaps our parents and the school systems believe that having an emergency fund is common sense, which I guess it should be. However, my wife and I were walking the financial tightrope without a net. If we had slipped the splat would have been pretty loud.
Not planning ahead of life’s uncertainties is another reason for our credit card debt. We should have had a budget with categories for car and household maintenance. I knew that the roof was going to start leaking. When we had our house inspected before purchasing it the inspector said that we had four to five years left on it. Guess what happened. As if right on cue during the fourth year the leaks started. If we had budgeted $125 every month for the roof there would have been no need to use credit cards to purchase it.
My Take on Credit Cards
Some people who find themselves in my situation may find it easy to blame credit cards for their debt. There may have been a time when I would agree with them. However, after sitting down and really looking at my financial past I would say they did not cause it. The lack of a safety net and not budgeting for the inevitable is what led to my situation. I believe that for some people using credit cards wisely can help out.
Credit cards are a tool that need to be used with respect. If they are paid off at the end of every month the discounts and rewards can help stretch your money. But using them as an emergency fund is an easy way to find yourself buried in consumer debt.
Have you ever been buried in credit card debt? What lead you down this path? The lack of an emergency fund? Not planning? Or using them as an extension of your paycheck?
For those of you who think that I could have patched the roof, it was beyond repair. It was the original roof with three layers of shingles on them. Patching it would’ve done no good because it would have became a monthly occurrence.
Photo provided by: 401 (K) 2012