Credit Cards - Be Careful!
If you respect the awesome power of credit cards, you are more likely to benefit from using them rather than be hurt by abusing them.
A credit card is a lot like wine. Most people I know can use credit cards almost daily and can drink one or two glasses with their dinner, and their lives seem to go on smoothly. Occasionally these same people overspend with their cards or they overdrink at a party, and they get a debt headache or a wine hangover that takes a little time to wear off. However, some people I know indulge too often in credit cards and in wine, and are not built to handle it. They use the freedom of borrowing to overspend and fill an emotional or psychological need now, robbing their future. They use the bottle of wine to drown fears or disappointments too hard to face today. Perhaps these people are better off without any credit cards and better off without any wine.
Chances are you already know your tolerance for credit. Yet even you may know someone who can be helped by the following guidelines of tolerance, temperance or abstinence. Also, even you could learn how to better use the cards and put more money in your wallet.
A. Benefits of credit cards
Used by millions of people, credit cards offer many ben efits including:
1. Convenience - Whip out a card, get it swiped by the merchant or read the card number over the phone, and voila you get the product or service you want. No need to carry lots of cash that could be lost. Also, some merchants, like certain auto rental companies, do not take checks, debit cards or even cash.
2. Delay payment - With a check, the payment comes out of your bank balance when your check clears, usually in a couple of days. With a debit card, the amount of the purchase is segregated as “on hold” from your bank balance. With a credit card, you have many days, usually thirty, from the end of the statement month, to pay for the purchase, thus allowing you time to come up with the funds or enabling your funds to earn interest at your bank.
3. Recordkeeping - The monthly statements detail the payee, transaction date and amount. Many credit card companies issue annual statements which categorize the expenses, helping in budgeting and tax return preparation.
4. Access to cash - Most cards offer lines of credit you can tap when you need a cash advance, charging interest on the unpaid balance, but usually at a high rate like 18%.
5. Credit worthiness - You can establish a good credit record by getting approved for cards, using them, and paying the balances timely. This will help when you apply to a lender for bigger purchases like a car or a home.
B. How to make credit cards work harder for you
1. Shop around for the lowest rates and fees
2. Always pay off your balance to avoid any interest charges and prevent abuse
3. Consolidate into just a couple of cards, saving fees and time
4. Use cards to buy when there are extra perks like airline miles
5. Get cash to bail out a cash bind (e.g. buying computer equipment before year-end to get the tax deduction)
6. Go online to view transaction history and simplify payment
7. Shun teaser offers that disguise low introductory rates with big increases later or high fees
8. Get cards with big lines or credit to be used in emergencies
9. Periodically check your credit report
C. Steps to take if you are in trouble with credit cards
1. Fess up
2. Get help and make a plan
However, most people who consider bankruptcy would be better off trying to work matters out with their existing creditors, if possible, even though the repayment process might be long and arduous. Out of a need to fulfill a repayment schedule, a debtor often develops better spending habits and creates new and better sources of income, usually lasting a lifetime. As part of the process of working your way back, it is okay to share your situation and objectives with relatives and close friends, who can be an important source of support when times get rough along the way. Another important source of support is prayer.
3. Get substitutes for credit cards
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