About 2 weeks ago, I wrote my first article of my “Friend or Foe” series looking at the pros and cons of having a credit card. As dealing with financial products becomes more and more complex, I thought that exposing their advantages and disadvantage could be a great idea. So today I am looking at student loans. While their existence is essential for many people if they want to get a good job, their use is not always for the greater good.

Student loans are pretty useful!

In an economy where service and knowledge are key, getting a decent education is the very first step if you wish to live a comfortable life. The only issue is that education is quite expensive and most parents cannot afford to pay the entire college tuition on their own for each of the children (especially if they have 4 of them!). So what do you have left to finance your studies? Certainly not your credit card!

Some students are able to work part time while going to college. I did that personally, working 15 to 25 hours a week while going to school full time, it sounds like a good idea. It will not only bring you more money but it will also force you to get organized, start your journey in the working world while building your network. Unfortunately, those few hours won’t be enough to cover all your expenses.

This is how student loans come into play. They offer a low interest and low payment schedule (that usually only starts once you finish your degree) to finance your college expenses. It is the best financial product to finance your expenses because of its flexibility and low cost. Since you are starting your life, it is not the right time to handcuff yourself with rigid financial products!

How a student loan can get you in trouble?

I have seen many people getting the biggest student loans they are entitled to year after year. They were thinking they could use this money to buy a car, new clothes or treat themselves to a vacation. Remember dear friends, if you don’t have to pay for it right now, it doesn’t meant that it’s free.

When you finish school with student debts exceeding 35K, I hope for your sake that you are a now a doctor . If not, you can be paying back your student loans for a very long time.

As it was the case when I reviewed the credit card, student loans can be a weapon of massive financial destruction if you use them based solely on the fact that you don’t have to pay it back right away.

I should have used student loans

I was lucky enough to receive help from my parents to pay for my tuition. I also made the choice to work full time (35 hours/week) while studying. Therefore, I finished school with no outstanding student loans. However, I could have used this money to build assets.

Investing money that you borrowed, paying a low interest on and that you don’t have to pay back right away could have been the best leveraging opportunity that I missed.

I’m not saying that you should get student loans to leverage this money but if you don’t need financial support, maybe getting a few bucks to invest in the market or buy your first property could be an interesting move. What do you think?

Personal finance is definitely a complex topic. In fact, financial answers are rarely  black and white. Everybody has their own opinion about how to manage one’s money and there is often more than one right answer. This is why I decided to create this Friend or Foe series. Over the upcoming weeks, I’ll take different financial tools and explain how it can be your friend or how it can be your foe.

Today, we start with one of the most debated financial innovations (or devil’s creation): The Credit Card: Friend or Foe?

Why your credit card is your worst enemy

All right, I’ll start with the easy stuff. It’s easy to hate credit cards and here are a few reasons why they can really be harmful to your personal financial health:

• They charge exorbitant interest rates
• They are too easy to use so you tend to charge them to the limit each month
• They are vicious since they always increase your limit
• 0% Apr balance transfer cards are just another trick to help you spend more money
• They make your Microsoft Money bust as you go over your budget
• Credit cards reward programs incent you to spend more
• Credit card debt is an important source of dispute among most couples
• Credit card issues can ruin your credit score and prevent you from buying the house you want
• Credit cards are… evil!

But I think that credit cards are your friend!

Huh? Say what? I just spilled all my venom on credit cards and now I will tell you that this is one of the most amazing personal finance tools ever created? I must be crazy

The problem is not the credit card, it is you!

Let’s be honest for a second. Stop reading, grab your car keys and jump in. Look at the speedometer. It probably says that the machine can go over 100 mph. Do you really drive at that speeds?

So if you sit back down in front of your computer, take your wallet out of your pocket and look at all your credit cards; do you really have to rack each of them up to their credit limits every month?

If you can control your credit cards, they can become your friend for many reasons:

• It’s the easiest way to build a solid credit score as your actions are reported monthly. Pay it off completely each month and you will build a stellar credit report.
• It’s also an easy way to gather rewards. I personally use my credit cards for all purchases. Therefore, I gather points on every bought. At the end of each month, I pay my credit card in full. I simply don’t have to avoid emotional purchases over the month and I have enough in my bank account to cover.
• 0% APR balance transfer credit cards are also an easy way to get (temporarily) out of the mud. However, jumping from one credit card balance transfer to another is not a viable solution. Before you apply for a 0% Apr balance transfer credit card, make sure you have determined a plan to pay it off.
• Credit cards allow you to use other people’s money to work for you for FREE.  I make all my regular monthly purchases the day after my statement is printed and have 6 weeks before the payment is due.  It is like an interest-free cash advance!
• My credit card allows me to have additional insurance on all my purchases and coverage while traveling. This is how I save a lot of money on insurance and extended warranties!

In the end, I find that credit cards are more your friend than foe. However, it is a volatile friend that you need to be able to manage well in order to get along .