Using a credit card may start out as a convenience. Too
often, though, it quickly turns into a way to pay this
month's bills with next month's pay. Come next month, there's not
quite enough to pay the balance, so it carries over to the next
month. The interest starts piling on. Next thing you
know, you owe thousands of dollars in credit card debt
and can't seem to find a way out.
Even when people do everything else right, their financial
lives can be ruined by heavy credit card debt. It makes us wonder
if we'd be better off without credit cards altogether.
Life without credit cards
Getting rid of credit cards can give you a great feeling of
freedom. You can chop them up ceremoniously with a
giant pair of scissors, melt them over a fire, or just give them
a toss. (Don't forget to call the credit card company and
actually cancel the account, though.) No more credit card
bills, no more temptation to spend more than you make.
That's all great -- until you try to travel or buy something
When you travel, hotels and car rental agencies generally
require a credit card. Yes, you can use a debit card instead.
However, beware of so-called "security holds" on your card. The
merchant can put more than the amount of your actual bill
temporarily on your debit card in case you have extra charges.
Unless you keep a substantial balance in your checking account,
you may not be able to use your debit card because of the hold --
a major inconvenience when you're away from home.
A credit card can also be a lifesaver if you have an
emergency, either at home or while traveling. It would be
great if you always had a ready fund to cover car repairs and
other emergencies. Life doesn't always work that way, though,
especially if you have more than one emergency in a row. It's
better to go into debt in the short term than to be stuck by the
side of the road with smoke pouring out of your hood.
You can use most online sites to shop without a credit card,
typically by using PayPal, Merchant INC, or similar services.
However, a credit card certainly makes shopping online easier.
Credit cards also generally provide you with consumer
protection for your purchases.
No credit cards = little or no credit history
For many people, credit card accounts are their main source of a
credit history. That credit history is how you prove to potential
lenders and other people with whom you want to do business that
you can handle financial responsibility. If you've chucked all
your credit cards because you don't trust yourself with that much
financial responsibility, how do you expect to convince anyone
Even if you never apply for another credit card or car loan,
you could still need a credit score to buy a house, take out a
business loan, or get into an apartment. Increasingly, potential
employers ask for credit scores. It's a little late to try to get
a credit score if you wait until you need one.
Credit cards without fear
You can have the convenience and security of credit cards without
worrying about going into debt. Here's how:
- Limit your number of credit accounts. It's easier to keep
track of two cards than 22. It's a good idea to have more than
one card, in case you're traveling and one card gets put on
hold or has some other problem. If you're shuffling through a
stack of cards trying to decide which one to use, however, then
you're asking for trouble. If you're trying to remember which
card still has an available balance, put them away. You have
too many cards.
- Avoid sky-high credit limits. The higher your credit limit,
the more you can spend. You don't want the limits too low. If
you go over the limit -- even by a dollar -- you can pay hefty
over-limit fees. Your credit utilization score will be hurt as
well if you use a large portion of your limit right when the
bank reports to the credit bureau. You don't need huge credit
limits you'll never use, however. If you have trouble with
overspending, an excessive unused credit limit may be too much
- Pay your balance every month with no exceptions. If you
make a large purchase, consider paying it early. Check your
statement for the interest paid year to date and resolve to
keep that number at zero.
- Consider using your card less. You only need to use your
card once in a while to keep it active. If credit card spending
has been a problem, pay cash or use a debit card for routine
purchases and save the credit card for when you really need
- Treat your credit card like a debit card. Think of your
money as having been spent when you buy something -- not when
you pay the credit card bill. It's the truth. Paying your
credit card bill, then, is simply transferring money from one
of your accounts to another.
- Keep tabs on your balance. Don't wait until the end of
the month. Check online and see how it's adding up -- before
you take your credit card out on the town again.
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