A Sure Way!

Scriptures: Prov 11:15; Prov 17:18; Prov 22:26-27; Prov 6:1-3

Are credit cards inherently evil?  No, but they can get you into financial trouble faster than it takes to get out of it.  Yet, credit cards do offer cash flow benefits to those who use them wisely.  Do you always have a sure way of paying off your credit card balances each month?

There are two points I wish to make in the article; the first is how to rightly use a credit card and secondly, how to avoid the consequences of cosigning debt. 

Credit cards are not inherently bad; it’s usually how we chose to use them that get us into trouble.  Credit should, at best, be short term and thus is how we should use it – short term.  Specifically, if you cannot pay off your credit card balance when the monthly statement arrives, you have probably overspent your budget. 

It’s that simple – don’t spend more with your credit card than what you earn per month or saved by the end of the month. 

When you read the Scriptures for this tweet, it speaks of surety or being a guarantor.  Being certain that you can pay off your debts is the definition of surety.  Whether it is your pay check for the month or coming from your savings, you should always be sure that you can pay off your debt each month! 

Surety is, and should be, diametrically opposed to hope.  You should never hope that you can pay off your debts, hope that you get that extra overtime, hope that you get that bonus, hope that you get that raise or promotion, hope that you win the lottery (okay this one is a stretch).  And so, how much do you spend without a sure way to pay for it? 

Which brings me to the second point and that is cosigning.  Too often, as parents of a young teenager, we cosign a credit application with the hopes that we are building a credit history for our young adult.  But in cosigning, do you realize that if your teenager does not have the means to pay for what is charged, you are the next in line to pay for the debt?  And since you have to pay the bill, is this the lesson you want to teach?

If you haven’t planned for the extra expense that can come with cosigning, then I would suggest one thing. Don’t cosign the credit application; there really is no rush to have a credit card.  Paying cash is not a crime and this is actually the best way for a teenager to learn how to manage his/her income.  Hold the line and do not cosign!

But are there any circumstances when cosigning is okay? Maybe, only if you have a sure way to pay.

Cosigning typically comes up as part of a lease/rental contract when your young adult is seeking to rent an apartment while at college.  This is something that happened to me. 

I wrestled with the Scriptures and came to understanding that since I had already planned for this expense as part of my daughter’s education and intended to pay it, I was actually benefiting my daughter’s credit history by doing so, since the lease was in her name.  The good news for me was that my daughter had already saved up the money through her own efforts (she had the sure way to pay the lease) and so she truly established he own credit worthiness and I didn’t have to pay the expense (to my benefit). 

The key point behind my circumstances was that I cosigned only when I had a sure way to pay the rent obligation and also knew that my daughter had a sure way to pay for it.

Bottom Line: Credit cards can be used as a means of augmenting your cash flow throughout the month, expecting that at the end of the month your entire credit card balance is paid off.  If you use credit cards as a means of purchasing things without a sure way of paying off the balance at the end of the month, I strongly recommend rethinking this strategy.