Credit Cards and Borrowing
A lot of people borrow more than they should. We at Banzai teach about debt so students get a clear, sober view of how credit cards and debt affect our lives. Our take is pretty simple: credit is a useful tool, but do your best to not borrow. Think of debt like being in a hole, and think of excess cash like being on top of a hill. It’s easier to fall off the hill than it is to climb out of the hole. In other words, it’s easier to get into debt than get out of debt.
In this article, we’ll discuss borrowing money by breaking it down into a few topics. In each topic, we’ll give the Banzai take and how all three of our courses (Plus, Teen, and Junior) teach this topic.
Are Credit Cards Bad?
Our short answer is, “Sometimes.”
One popular thought making the rounds in personal finance blogs is that you should never own a credit card. The reasoning is that you’re more likely to use your credit card when you shouldn’t. What has followed in the personal finance self-help world is an implied belief that credit cards are inherently bad. While avoiding credit cards can be useful, this idea is a bit unrealistic, especially considering our modern world. It’s sort of like eschewing the evils of smartphones and living without a cellphone of any kind: it’s possible but very inconvenient and difficult.
Using your credit card sparingly and deliberately is not a bad thing. Some people with good liquidity use credit cards for everyday purchases, because you can earn points and build up credit by immediately paying it back. This use is a responsible practice but only works for people who are good at paying their monthly bill. On the flip side, we encourage students to avoid using credit cards for unnecessary items and to always pay their full monthly bill, whenever possible.
What We Teach
Banzai Plus, Teen, and Junior all teach about borrowing money. In Junior, you run a lemonade stand and run out of lemons. Then your mom gives you a short-term loan, which you have to pay back.
Junior also has you put part of your income toward paying back the IOU.
We encourage putting aside part of your income each month to pay off debt. In Junior, making that first payment toward the IOU or credit card is not optional, but it is in Plus and Teen. In these cases, debt was unavoidable, which is sometimes happens in real life.
When Teen prompts you to make your first credit card payment, you have three options: you can skip the payment, make the minimum payment, or make the full payment.
As with any scenario in Banzai, there is a consequence for every choice. Making the minimum payment means you’ll pay high interest. Making the full payment in Plus and Teen—which we encourage—comes with a reward. Choosing to skip the payment in Teen gives you a late fee:
In Plus, when you decide to use your credit card frequently, you receive a warning:
In Plus, if you make a late credit card payment, you see how it affects your credit score:
When Should You Borrow?
Our short answer is, “Only when you need to.”
Even if you’re generally responsible with your spending, you probably won’t have cash on hand for every type of emergency, disaster, or large purchase (e.g., car, home). We still teach students to save for a rainy day, but credit cards and auto loans are basic forms of credit that improve your ability to buy a home, car, or another necessity of life, and most people have to borrow in these cases.
For example, even if you save up and could pay for a nice apartment, many landlords look at your credit history. If your credit history is nonexistent or if you have delinquent accounts, your application for that apartment probably won’t go through. Even if you start a business and need to get a business credit card, your bank needs a personal guarantee that you will handle the business card responsibly, so they will look at your personal credit score.
What We Teach
Banzai Teen forces students to confront certain issues; it exposes them to the reality of random life events and paying interest. There’s no way to avoid every possible disaster and still live in a modern economy, so Plus and Teen students have to go through a series of small events that require them to use a credit card. There’s no use crying over spilled milk—you have to pay it.
Many adults are tempted with store credit cards when they go shopping for clothes or electronics. Store credit cards are one way you can save money if you shop at that store frequently, but there’s a catch: your credit report undergoes a hard inquiry. In Plus, we take on this issue:
Credit cards are not inherently evil. They have their downsides: the temptation to overuse, high interest rates if you don’t have a good credit score, and the debt they incur. But they also have their uses: the ability to build good credit, a safety net for unexpected purchases you’re not prepared for, and the rewards they sometimes offer.
Banzai courses take a balanced approach to teaching real-world application of debt, credit cards, and borrowing.