In a world reeling with crashing home values, unemployment or re-employment with a greatly decreased salary, and staggering consumer debt, the question arises as to whether or not credit cards are budget busters wrecking havoc in today’s family finances. Budget busting is especially harsh if the total charges on the monthly credit card statements are an unpleasant surprise.
Should credit cards be part of a personal finance plan? My answer is yes, but with moderation. Credit cards are needed to purchase airline tickets, reserve hotel rooms, and rent cars.
Carrying a large amount of cash is unsafe but frequent trips to your bank or ATM are time consuming. Personal checks are unhandy to carry around and also invite their own safety issues. Therefore, credit cards serve as financial assistants and simplify our purchasing needs.
How do you choose which credit cards to use? A good choice for major purchases is to use cards with zero interest if the balance is paid within a specific time period, for example, cards issued by Best Buy or Home Depot. Be sure to pay the balance before interest is assessed. For household expenses, pick credit cards with rewards. Many credit cards, for example VISA and Discover, have credit cards with cash back rewards of 1% that you can receive as cash or trade in for merchandise. At various times, some credit cards will offer 5% for specific category purchases with their cards; a category example could be food or travel
Credit card use should be limited to the dollar amount that can be paid, in full, each month. I always think of credit card interest as money I have “lost” or a “decrease in income” because I could have used the interest money to purchase other items. If you currently have debt on your credit card(s) that is not paid off monthly, I will give you the same advice as most credit advisors, “pay it off as quickly as possible” even if you have to scrimp on everything except the basic living necessities to do it. Take a hard look at the interest charged each month on your credit card statements and think of how much income / buying power you have forever lost.
Use the Internet to frequently monitor ALL your credit card expenses. You should always know the EXACT balance on each credit card after you add in any recent charges that have not posted. Know the closing date for each credit card and delay purchases, if possible, so that you will not exceed your credit card budget for the month.
Credit cards make your life easier…if you don’t spend faster than you earn!