How to Use Your Credit Cards Wisely

March 8, 2010 by Jay
Filed under Credit Cards

There are two ways to look at credit cards and what they can mean to you. One: they are a very useful tool that provides you with instant credit, a chance to purchase goods or services (or pay important bills) when you don’t actually have cash on hand.

Two: they are dangerous “pieces of plastic” that don’t look like money, don’t feel like money, but can be used like money … money you often don’t have. The problem with credit cards is that in the wrong hands, they can be used foolishly creating substantial personal debt very quickly. It’s easy to use a credit card, much more difficult to pay back the money you’ve borrowed when you did use the card. The problem is simple: people use credit cards when they don’t have money to pay for the purchase they’ve made.

That’s a surefire method for getting into debt – FAST! The rule of thumb for credit cards should be as follows: if you don’t have the money to buy something for cash, you can’t afford to make the purchase with your credit card. It’s really that simple.

If you can’t pay for something with cash, you can’t afford to use your credit card. Follow that logical reasoning all of the time and you will avoid the “black hole” that swallows up so many credit card users and pushes them into debt that often lasts for years and years.

Credit card issuers know that people use their cards foolishly. That’s why they issue them so freely. A credit cardholder who pays late gets socked with late fees, high interest rates and penalties. The credit card company makes a fortune, the credit card user falls deeply into debt.

Here’s how to avoid that problem: treat your credit cards as if they were blank checks in your personal checkbook. You would never write a check if you didn’t have cash in your account to cover a purchase. Imagine – always – that your credit cards are blank checks. In that way, you will avoid spending money you don’t have … avoid debt that will be difficult to repay.

Here is another good idea. Eliminate your credit cards or, if absolutely necessary, keep one card for purchases related to your car (gas, repairs and the like) and a second card for everything else. That’s all you need … just two cards. If you have more than two, you may end up using the credit they provide and you will almost certainly fall into debt.

Finally, use debit cards instead of credit cards. Why … because debit cards allow you to spend only what you have on hand in a tie-in account (usually your personal checking account). Debit cards can be used like credit cards, but they do not allow you to spend beyond your means. That makes them the best possible solution for you.

And if you feel you have to use credit cards, be judicious. Never spend beyond your budget. That means you need to be realistic and disciplined. Do it … for your own good!