I’ve had this on my mind for a long time–why are so many people misinformed about how to properly use a credit card, and end up using them irresponsibly? I keep thinking, if you use a credit card responsibly, isn’t it the same as how you would treat borrowing money from a friend?
For the majority of people, it’s not a good idea to mix personal relationships and money. 35% of those with relationship stress say it’s because of money. So in good friendships, we try to reduce the amount of time we spend owing our friends money.
Say I go out with my friends to dinner, and it turns out the restaurant is cash only or only accepts one credit card per table. I ask my friend to cover me. Then I pay them back as soon as possible on Venmo. Sometimes I even pay them while still at the dinner table. But if I don’t have service on my phone, I pay them as soon as I can. I never want to give them the impression that I’m going to take advantage of them or not pay them back. It’s just bad friend etiquette.
The point is, you don’t treat that money you borrowed as yours, it’s money you must pay back unless you’re willing to sacrifice your relationship and credibility with the person you borrowed it from. And this is really the proper way to treat the money we spend on credit too.
1. If you borrow money from a friend and don’t pay them back, they won’t lend you money again.
Just as if you miss too many payments with your credit card company, they’ll stop waiving late fees and report you to the credit bureaus. With your credit score in the toilet, few credit card companies will trust your ability to pay them and refuse to extend you a credit line.
A friend may be understanding the first couple times you see them and forget to pay them back, but they’ll start doubting your intentions to return the money if you’ve been seeing them regularly and still haven’t made any motion to do so. Their trust in your word and your pocketbook erodes.
I still remember in second grade I got a lollipop as a reward for completing a homework assignment, and a boy in my class told me he would give me a quarter tomorrow if I gave him the lollipop today. Needless to say, I never did see that quarter. Ok…so maybe I was the sucker. All I can hope for now is that he learned his lesson the hard way!!
2. Paying someone back a reasonable amount is better than paying back nothing at all.
I think of this like a minimum payment. A credit card company will accept a fixed percentage of what you owe if you can’t pay back the full balance, and that’ll keep you in the company’s good graces (as your wallet weeps from SKY HIGH PURCHASE APRs) for a while longer.
If you can’t pay back a friend because your next paycheck hasn’t hit and you transferred the majority of your checking account balance into savings (I actually did this a few times…convoluted end of month account balancing…), they’ll trust that you’ll pay them back if you give them what you can (within reason!). Paying a friend back $5 if you owe them $20 is great! Paying a friend back a penny if you owe them $20 is not so great and unlikely to positively influence their trust in you.
3. Your friend probably won’t lend you more than they think you can afford to pay back.
I think of this like a credit limit. A credit card company will take into account your salary, credit score, and other factors when you open a credit card with them to determine what’s the maximum they’ll allow you to spend on the card.
Similarly, if you ask a friend to lend you some money for a crazy indulgent purchase, they would probably sum you up in their head and determine whether you can or can’t afford this. They might quickly consider your age, your apartment (and rent), your job (and average salary for that job) and think…I’d be crazy if I lent you $4,000 to buy this Chanel bag right now!
4. The more reliably you pay back a friend, the more they’ll trust you to pay them back in the future.
They may even let you borrow more money than usual! I once wanted to buy a camera that cost $1700 that was on sale on eBay. It was a great price for this camera, but I had to pay through PayPal. Since I hadn’t paid for anything using my PayPal account for years, the account got locked trying to buy such a big ticket item and wouldn’t let me complete the transaction. Thankfully my amazing friend and roommate at the time bought it for me trusting that I would pay him back immediately–This is after we already had many years of paying each other back promptly for meals and other expenses.
Similarly if you’ve had years of on time payments with a credit card company, you may log in one day to find they raised your credit limit!
5. The more reliably you pay back a friend, the more forgiving they’ll be if you forget to pay them.
We all make mistakes, and sometimes you forget to pay your friend back for that $15 meal they spotted you. If you have a history of paying them back within a reasonable amount of time, they have no reason to think you’re purposefully “forgetting” to pay them back. They’ll probably just bring it up to you, you’ll apologize and pay them, and life goes on.
There was a time I missed a payment on a new Chase card because I thought I had set up AutoPay but didn’t actually save my settings. I realized within a day or 2 but I had already been charged a late fee and some Purchase APR. Since I’ve been a Chase customer with another credit card for a long time with a long history of on time payments, I called them and asked if they could waive the late fee and charges, and they had no problem forgiving my slip up.
I find it really helpful to reframe credit card use into something that’s human. Thinking of it in a way that’s similar to your day to day interactions with friends illustrates how we should think of credit. If you’re afraid of credit cards, I hope this changes your perception. When it’s you vs. credit card companies, the whole situation can feel out of your control. But when it’s you and your friend, it’s much easier to think “My actions directly influence this relationship”.
I’d love to hear any other funny similarities you all can add to this list in the comments below!