Credit cards certainly are convenient to use! They provide instant credit and they greatly reduce the need to carry money. However, for many people, credit card usage can become the financial equivalent of cocaine usage.
Ron Blue, a Christian writer and lecturer on family financial matters, states on page 124 of his book entitled Master Your Money,
I read somewhere that the mere use of credit cards will cause a family to spend 34% more, regardless of whether the full statement is paid off each month or not. I found that totally unbelievable and spent a year trying to disprove it.
[A]fter living on a straight cash budget for a year, without using credit cards at all, our living expenses decreased by 33% from a level I had thought was ‘bare bones’ to begin with.
Also, with regard to credit card usage, a U.S. Department of Labor publication entitled A Guide to Your Money and Your Financial Future cautions,
Credit cards can serve many useful purposes, but people often misuse them. Take, for example, the habit of making only the 2 percent minimum payment each month. On a $2,000 balance with a credit card charging 18 percent interest, it would take 30 years to pay off the amount owed.
In light of the preceding information, it should be understandable why an article in The Wall Street Journal (12-1-97) reported, “There is a clear consensus among the experts that [people] should avoid credit-card debt at almost all costs.” This does not mean credit cards should not be used. It means that credit card balances should be paid in full every month.
If you plan to use credit cards, be sure to do what is necessary to use them wisely. The suggestions that follow should be helpful.
1. Use only credit cards with a grace period that allows you to avoid interest charges if you make full payment within a reasonable number of days after you are billed. Since most credit cards don’t levy a finance charge if the entire balance on your monthly statement is paid in full by the due date shown on the statement, you can get an interest-free loan on credit card purchases you made a month or two earlier.
2. If you don’t expect to be able to pay the entire balance on your credit card statement each month, use only the credit cards with the lowest interest rates. This will necessitate that you regularly check to determine which cards are currently offering the lowest interest rates.
An FDIC Consumer News publication (summer 2007) says,
[I]f you get a new credit card promoting zero-percent interest on new purchases and you don’t pay off the entire balance by the due date (typically after six to 18 months), you may be charged interest on all your original purchase amounts – not just the remaining balance – retroactive to the original purchase date.
3. Be careful about offers of rebates or frequent traveler points. An article in The Wall Street Journal (4-27-94)states:
A lot of credit-card promotions have been for cards that have a tie-in to frequent-flier or rebate programs. The pitch is that by using the card to make your usual charges, you’ll earn credit toward everything from free airline tickets to discounts on new car purchases.
But for people who habitually carry high levels of revolving debt, the interest rates these cards carry frequently obliterate the perks. By the time the card holder gets the free tickets or product deals, he could have paid the price and more in interest charges . . . .
4. As a general rule, use only credit cards that have no annual fee. According to another article in The Wall Street Journal (12-8-95), “[C]ustomer-service representatives often are authorized to waive annual fees . . . to retain customers – if the customer only asks.” However, the article notes that it is more difficult to get the fee waived on credit cards that charge a well-below-normal interest rate.
5. Limit the number of credit cards that you carry. For most people, the more credit cards that they carry, the greater will be the total amount they charge to their credit cards.
6. Keep all of your credit card receipts and compare them with the charges that are shown on your monthly credit card statements. Otherwise, you may not be aware if you are charged for purchases that you did not make or for incorrect amounts.
7. Do what is necessary to avoid being the victim of credit card fraud.
· Watch your credit card while it is being used to process the credit bill. If for any reason a credit card bill needs to be redone, make sure the incorrect bill is thoroughly destroyed.
· Do not give anyone your credit card number over the telephone or on your computer unless you are certain that the person you are speaking with represents a business that you know is trustworthy.
· If your old credit card statements have your full account number on them, thoroughly destroy them before throwing them away.
· If you are not planning to use a particular credit card anymore, thoroughly destroy it yourself — do not give it to anyone else to destroy.
· If your credit card statement does not arrive within a couple of days of its normal monthly arrival date, promptly notify the credit card company.
· Keep a list of all your credit card numbers, so you can immediately report cards that are lost or stolen. Your maximum liability on unauthorized use of each credit card is $50, but you will not owe anything on charges made on those cards after you have reported the loss.