Monday, 3 October 2011

How To Use Credit Cards Properly

Visa, MasterCard, American Express. These little pieces are plastic are the reason why so many people are in debt. However, are they really the reason why personal debt is through the roof, or is it something larger? I've had a credit card since I was 18 (only three years ago so I'm pretty new to this) and I've always paid off every bill without any difficulty. A credit card can be a great tool if used properly but lethal to your financial health if you're unaware of the pitfalls.

First and foremost, it is essential that you realize that a credit card does not mean you have access to free cash. Whenever you spend put something on your credit card, the purchase is still coming out of your pocket. The only difference is that instead of paying up front, you pay at the end of the billing cycle. This can be a gift and a curse and I'll talk more about it later. If you find it hard to make this differentiation then I suggest that you avoid the plastic because it's very dangerous.

It's so easy to get a credit card nowadays. Especially students, they stalk us like predators. They throw  freebies like mugs and t-shirts at us and harass us every time we go pass their booths on the subway or at the mall. Do not fall victim! Signing up for multiple cards can hurt your credit rating which would affect you further down the line when you need a loan for something like a house. You really only need one card.

If you feel that you have good self-control then credit cards can be great. When most students get their first cards, the cards don't have any perks, but it will build up your credit rating if you use one card and consistently pay off the bills on time. Getting something like cash back or a card that give you something like Scene points for movies is a good way to get something back for money you were going to spend anyways. Extra stuff at no extra cost is always a good thing.

Alright let's talk about the deferral of payment. By letting you pay at the end of the month instead of on the spot, the money that you spent gets to sit in the bank for an extra month to collect you interest. This is essentially an interest-free one month loan which is a nice gift from the credit card company. To be honest a particular purchase probably won't earn you much at all but it all adds up over the course of a lifetime.

The curse is that because the payment is put off, some people have the mentality that they can spend money that they don't currently have. They reason that they can find the funds by the time the bill comes. This is very dangerous! What happens if you can't pay the bill? Well that nice little interest-free loan just turned into a 19.99% killer beast that the credit company just unleashed on you. This beast is relentless and hungry for your cash. You have to be very cautious when using credit cards. Luckily there are credit limits put in place so that we can't do an infinite amount of damage to ourselves.

The key thing to remember is: do not spend money that you do not have. Don't cross your fingers and hope for the best. Err on the side of caution when it comes to these little pieces of plastic by using them under the assumption that you may be fired tomorrow, immediately cutting your income. If that scenario plays out and you can still pay of the debt at the end of the month, then you'll be able to enjoy the benefits of a credit card while avoiding the perils that come along with it.

Do you guys use credit cards? If so, how many do you have and how often do you use them?

-the Paperboy

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