The Lure and Temptation of Credit Cards
I like to watch TV as I write (I can multi-task 
) and was watching “Til Debt Do us Apart” and saw this couple that had 12 credit cards. I recently wrote an article about getting a guaranteed 25% return by paying down your credit card balance, read that article here. Having 12 credit cards is probably the biggest sign that someone is extremely financially irresponsible in most cases. In the case of the couple in this show, they were paying over $750 just on interest alone, on a monthly basis! That’s a one-way ticket to financial hell.
When it’s OK to have 12 Credit Cards
I say “in most cases” because you could still be financially responsible and have 12 credit cards. Some people enrol in credit cards to take advantage of the perks that comes along with the credit card. There are cards from famous companies like Starbucks, Disney, Gas Stations, etc. that can give you a one time special bonus or help you accumulate points. In these cases, if you can control your spending, it could be a smart financial move. However, I would not recommend it. If you get your one time perk, considering getting rid of the credit card after a year as it could affect your credit score.
My Situation With Credit Cards
Before I go any further, I’ll let you know that I have a total of one credit card in my wallet. I put everything I can on that one credit card, but I always pay my monthly balance in full regardless of the balance I accumulate over the course of that month.
I should also note that I love credit cards. If you use them right, you can use other people’s money (OPM) to make purchases, and if you time your purchase right, then you won’t have to pay interest or pay for the purchase for a month. You can do this by making the purchase after your statement date, which you will find on your credit card statement.
Always Use Your Credit Card within Your Means
You should know how much you could afford to spend on a monthly basis. Know how much you take home after taxes and always keep track of your expenses. If you plan to be financially free eventually, then you need to plan your spending and savings and review this on regular basis. Nothing in life is absolute, this includes finances so always stay on top of this. At the very least, review your income and expenses every 3 months.
If I go over what I can afford, which I never do because I project how much I can spend and save for bigger purchases, then I tap into my line of credit at my bank because it is a lower interest rate. This becomes necessary when I have to make bigger purchases or payments, like car insurance and other big-ticket items.
The Lure and Temptation of Credit Cards and What You Need To Do
Credit cards are probably the most popular form of plastic in this world. Credit cards allow you to buy something you might not be able to with cash right now! You could get that home theatre system or even a car if your credit limit allows you to. We want everything now and credit cards allow you to. But you need to stave off that temptation and know exactly what you can afford.
If you are someone that goes on shopping sprees or are an impulse buyer, you probably shouldn’t have a credit card. If you must, only carry one with a limited balance. Credit card companies will be happy to increase your credit limit because it could potentially mean an increase in profits for them. If you become late with your payments and don’t pay even your minimum balance, credit card companies can increase your interest rate without notice!
Like I said earlier, what you need to do is know exactly how much you can afford. If you’re going to buy something that is expensive, save for it beforehand.
Using Your Credit Card to Learn Financial Responsibility
“Why use your credit card at all if you have the cash saved?” You ask.
There are a number of reasons to use your credit card for every purchase.
First, if you have a credit card that accumulates points, you’ll get points for your purchase! You could be saving towards your next vacation! Be sure to pick a credit card with points that could be used for a variety of things so that it makes sense to save up for them.
Second, you could be improving your credit rating if you pay off the entire balance that month. Instead of paying the minimum payment or anything less than the full amount, if you pay the full amount you’re showing the bank and credit card companies that you can deal with debt responsibly.
Third, you won’t have to carry all that cash around with you and you could pay off the balance with your online banking account, if you have that set up. Of course, you could go into your local bank branch to pay off the balance as well. I just do everything online to save time, and well, I’m a lazy person so efficiency means everything to me.
Credit cards a scary tool in the wrong hands, but can become a powerful tool to build financial responsibility in the right hands. Don’t let the lure and temptation get to you, make sure you pay off your balance in full every month and become financially responsible. Tomorrow I’ll talk about why it’s a dumb idea to get credit cards with a low APR (Annual Percentage Rate).
Debt photo by iDanSimpson on Flickr.
