Secured Credit Cards: A Tool or a Crutch?
Updated: Dec 28, 2021
I don’t pretend to have all of the answers regarding personal finance. What I have is a desire to help, a passion for money and a bit of education on the subject. So as I’m on this journey to help people, I am running into circumstances that I’ve never personally experienced, and questions that I’ve never been asked. Empower forces me to research, investigate and form opinions on new aspects of personal finance, and I LOVE that!
All of that brings us to secured credit cards. For people building or rebuilding credit, these cards can be a useful tool. What I have learned is that you have to select secured cards that will report to the credit bureaus - otherwise, you’re not building credit. You should also select cards with no interest or low interest and no fees. Here are the two cards you might want to check out: Petal 2, Chime Credit Builder.
I warned you that this one was going to come with an opinion. Secured cards never dawned on me because I always heard they were bad. Chosen carefully, they are not necessarily bad. But I think that secured cards may allow you to mask a different issue - why the credit needs to be repaired at all.
Rebuilding credit is an opportunity to ask some “Face Your Finance” questions…What are the items causing the “bad credit” now? How long have those items been on the credit report? How many of those items are there? What is the long-term goal regarding credit - is there an expectation of a home or car purchase in the near future? Are your current bills being paid on time?
Debt is either a symptom or a tool and it’s not my place to define what it is for you. If it’s a symptom, then it’s because you’re not paying attention to what you make or what you spend and you’re choosing debt. If it’s a tool, then you’ve decided to use debt as leverage to obtain something that really, truly matters to you. You’ve made a conscious choice that debt is a means to a particular end, and it’s worth the total cost (including interest, fees and hidden costs). If the credit issues were caused by something catastrophic, something guaranteed not to happen again - then maybe a secured card is the way to recover. But if the issue was a series of smaller events, or worse, you’re not sure how you came to need a secured card, then it may be time to pause.
If you’ve been in the webinars, you know how I feel about debt and credit and that extends to secured cards. Debt is a tool and some of us can use it to our advantage. But for some folks, cards, even secured cards are going to lead to bad behavior and habits that you’re trying to break. Only you know which camp you’re in. But if you’re considering a secured card, just be sure that you’re being honest with you about how you plan to use it and whether it’s a tool or a crutch.