A recent survey has revealed that the millennial bunch is one of the kind-hearted ones. When a friend comes calling about a situation in their life, this young bunch is likely to do all it takes to help them out. This includes bailing them out of a tough financial situation by sometimes lending their credit card. But, as a lot of financial planners say, lending your credit card is a bad idea because it’s a slippery slope and before they know it, they have entered a pandora’s box of sorts and there’s no easy way out of that.
There’s a likely chance you may have already given your credit card to a friend or family. But, it’s not always a good idea. Let’s take a look at the why of it here.
There are a lot of things wrong with giving your credit card to your friend or family. When you do so, you lose control over what happens with your card entirely. What if they aren’t aware of the limit and shoot way over the limit? What if they randomly use the card on a less secure website? In short, it can have a massive impact on your life. Here are a few:
It’s one thing to use a credit card for yourself and another to lend it to a friend. If you own the card, it means you know how the payments work, when the company sends you the bill, and what the due dates are for you to clear the bill. But, giving it to a friend makes it an open-ended loan. In that, there’s no real assurance as to when you are going to get it back, or if you are getting it back at all. When concerns regarding money arises with friends, more often than not, the shelf life on the relationship plummets and you may lose your friend forever, if due to some unfortunate circumstances, they don’t return the money they owe you.
When the card is yours, you would tend to take good care and check the outstanding balance you have and the credit limit you still have remaining. You would also make sure to not go over the limit and risk being slapped with a penalty. Your friend may not have the same foresight. What if they happen to spend a slightly higher amount than the limit you have available? Here’s what will happen. Firstly, you will receive a penalty for going over the limit, secondly, the credit information bureaus will receive a report about this.
Yur subsequent month’s credit score will take a dip because your credit utilisation ratio (CUR) went way beyond what was available. And the worst part is, none of would have been your doing.
The whole point of having a credit card is to be able to use the available funds at the time of absolute need. It’s like an instant loan walking around with you in your pocket. Imagine you are suddenly hit with a large money requirement, say you need to pay the insurance premium on you health insurance and your motor insurance, and you timed it such that both of them can be cleared at the same time. What do you do under such a situation, when you do not have your credit card with you? You may ask for the card of course, but what assurance do you have that the card hasn’t been maxed out yet? Or that there is very little balance to make the premium payment? This is another reason why you should be discouraged from lending your credit card to others.
If at all you are not convinced and still believe that you will be there for your friends to help them, there are a few ground rules you need to set and a few questions you need to ask yourself before lending your card. Here are a few of them:
Lending a card to your friend or family is a risky proposition as it may be misconstrued as free loan and people sometimes may not pay you back. To stop from falling into the trap of losing your money, you will need a strong plan like the one mentioned above to recoup the money offered.
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