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Credit cards are not evil
By Daphne | September 27, 2007
Credit cards are not evil.
So, wait yesterday I said that cash was not evil. Now today you are saying that credit cards are not evil. How can you say that? Having a healthy relationship with money and credit is good.
The problem with credit cards is that too many times they are pawns in drowning people in debt. Not all debt is bad - a mortgage that you can afford is good debt. [Housing should account for about one third of your gross income.] New shoes for a party that you will probably wear only once is not good debt. Buying food in restaurants when you don’t have the cash is not a good form of debt. If you do not have the cash to pay for it, you will be stuck paying interest on the card.
Credit cards, even the ones with high interest rates or fees to carry them can be used wisely. Here’s the secret…
Shhh…. don’t use all of your available credit and pay off the balance before the due date.
Let’s say you opened a store card because you were tempted to buy a new television or dryer or computer, etc.. The promotional offer also gives you an extra 10% off your purchase and you have to pay all of the balance within six months with a minimum payment. No sweat. You may not be able to pay the total in one month or two; but could you easily pay off the total in six months or less?
To do this you have to pay:
- ON TIME!
- More than the minimum amount!
- Diligently!
And…
- Pay off the balance before the promotional term ends!
Being frugal doesn’t mean that you have to do without everything. There are some things that you want and don’t want to go deep into debt to buy them. I’ve been there before… to get an extra discount on a piece of luggage, I opened a store account and got an additional discount. I quickly did the math. By opening the store card I did have another line of credit, but I knew I had the money to pay for the item, which was considerably less because I used credit wisely.
Using credit wisely is important. If I had bought more than I intended to buy and was unable to pay for the purchase by the time the bill came that would have been a bad use of credit. I was taking the opportunity to get a greater discount on something that I went to buy. I was not making an impulse buy. Opening a new store card just because you were asked isn’t always a good move. If you have too many new cards open within a short period of time, your credit rating suffers. Using the credit cards you have wisely by paying on time, and in full so you avoid fees helps your credit score and your wallet. Wouldn’t you rather use the $39 late fee you have to pay on a credit card for something fun, or stash it away in an emergency fund or investment account?
Credit cards are not evil if you use them wisely. In fact they can be great tools to help improve your relationship with money.
Topics: September 2007 |