Credit Cards: Friends or Foes?

An offer for your very own credit card? Just think, you could take advantage of the sales that always come the week-end before your paycheck does; your friends would be impressed beyond belief; and, best of all, your parents would finally have to admit that you really are an adult. Sounds great doesn’t it?

Like Santa Claus promises to deliver whatever you want for Christmas, credit cards promise to deliver whatever you want, any time and any where. All you have to do is head for the nearest store, present your card, and, presto, you are on your way home with your purchases.

Unfortunately, the resemblance between your credit card and Santa Claus ends right there. Such purchases are not free gifts; every item purchased on your credit card must eventually be paid for by YOU. And, not only are you expected to pay for each item, but you will also be charged a monthly interest fee or service charge on the unpaid balance.

Some of the more popular credit cards charge an additional yearly fee for as long as you keep the card, whether or not you make any purchases with it. Although the fee is fairly small, it should definitely be considered when deciding whether you, personally, would benefit from owning a credit card.

It’s true that credit cards can be extremely useful; the negative stories you hear about them can usually be traced to lack of wisdom in their use.

Credit cards are, presently, fairly easy to obtain. Besides the well-known Visa and Mastercard, most major retail stores offer cards of their own. Usually, you must fill out an application for a particular card, but some companies mail them out to the general public.

Most reputable companies require that you have some sort of employment before you are eligible for a card. They also set a limit for your card, based on your income, and once that limit is reached, you must reduce your account balance before making additional purchases. Some limits amount to thousands of dollars, and the size of your monthly payment depends upon the balance due at any given time.

Following are a few guidelines that may be helpful, not only to those who are considering the pros and cons of credit card life, but also to those who already have one or more of the powerful little plastic critters in their wallets. Remember, there really isn’t any Santa Claus when you are talking about credit, and those little plastic cards sometimes create more problems than they solve. If you do decide to use one, keep the following points in mind, and your credit card will become a useful tool in your hand; one that works for and not against you.

1. Before you obtain a credit card, decide whether or not the advantages you will receive from its use will outweigh the extra costs you incurred in interest and service charges.

2. Don’t use a credit card to create an unrealistic standard of living for yourself. Sooner or later, you will reach your credit limit and find yourself unable to maintain that standard. One young man we know reached his $2500 limit on a major credit card and promptly applied for a card from another company. Reaching his limit there, he obtained a third. Now he is faced with high interest payments on his first and second cards and will soon reach the limit on his third. Because he has trained himself to live above his income, a large part of his salary goes to keep up the payments on these cards, and he sees no possibility of getting out of debt for several years. “It was so easy to charge things,” he explains, “and I bought things I probably wouldn’t even have considered buying if I’d had to pay cash.”

3. Try to limit your credit card purchases to emergencies or opportunities that will not be repeated. We all have unexpected problems that pop up occasionally, or we find an item we have been seeking for years. These might be acceptable uses for a credit card. Daily expenses and ordinary run-of-the-mill sales are not. Who wants to be still paying in July for a hamburger he ate in March?

4. Never, never loan your card to a friend. If your friend cannot qualify for his or her own credit card, then that friend is certainly not responsible enough to be entrusted with yours.

5. Don’t make the mistake of throwing out your budget just because you get a credit card. You still need to plan expenditures carefully and to learn to live within your means. A credit card does not add one extra cent to your income; it merely allows you to pay for certain items at a more convenient time. Too often, that more convenient time never arrives.