Credit cards, yikes. You’ve spent so much time trying to fix your credit, pay your debts, but part of the credit score calculation tells you that you have to have some open revolving accounts.
If you watch Dave Ramsey, he says don’t use debt, and to cut all of your credit cards.
However, real wealth comes from leverage. Which means, that you can actually use debt wisely instead of poorly. It might be a little confusing on what is good debt vs bad debt. Basically it means that you have to borrow wisely and make sure that what you bought pays for the debt payments throughout the period of time until it’s finally paid off.
Credit cards are probably the worst thing to leverage. Why? Because the interest rates are at an average of 19%. Typical investments give you a return of about 4-8% which means that if you put an investment on a credit card, unless you are paying it off within 30 days, you will essentially be losing money.
Good debt can be managed with mortgage debt, where interest rates are at 5% and you can rent property and collect 10-12%, basically pocketing the difference year to year, and the rent from the tenant helps you pay the mortgage through time.
In order to be able to qualify for these rates, you would have to have low debt, and a great credit score. You can have 10 credit cards open, but the key here is to NOT use them.
Yes, not use them. You can have 10 credit cards open, and only use 1. But every six months you can buy a soda or something inexpensive and pay it off to prevent the account from closing.
One of your employees Fred, has 5 cards , 1 that he mainly uses, and the 4 he divides monthly subscriptions. 1 he uses for the gym, another for his netflix account, another for his icloud account. This is an excellent strategy.
Again, do not be afraid of credit cards, you need them! But understand that this is essentially a trick to bait you to use it. Be smarter, have discipline, don’t carry balances over to the next month. Only spend what you can buy with your own cash and pay it off immediately, and you’ll be closer to financial freedom!
Read this helpful article about How to Raise Your Credit Limits