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Credit Basics
Credit Cards - Do I Really Need
One |
Credit cards offer conveniences that
are hard to pass up -- extra security, quick identification or simply lack of cash. So you
have to ask yourself, "Do I really need a credit card?". The answer is a
personal decision. One that depends on how you plan to use the card and whether you will
use it wisely or not. Let's take a look at the good and bad of owning a credit card.
The Good
- Credit cards are an universally accepted
form of payment, especially when compared to writing checks. There are an increasing
number of places where you card is welcome: movie theaters, grocery stores, internet
purchases, even the IRS accepts payments via your credit card -- imagine that! And credit
cards are usually safer than carrying cash.
- If you have a dispute with a merchant
over an item purchased with your card, you may have the right to withhold payment
depending on the circumstances. Buying large ticket items with a credit card may afford
you more protection if the item should break, not work as advertised, or fail to meet your
expectations.
- Many cards have grace periods that last
as long as 25 days. Essentially, you're given an interest-free loan for a month before you
have to pay off your charges. Money in your savings or checking account will be allowed
additional days to earn interest until it is used to pay off the credit card bill. This
strategy is only successful if you pay your balance in full each month.
- Credit cards are an invaluable source
during emergencies: car repairs, medical emergencies (if you don't have health insurance),
or other jams in life that require significant cash quickly.
- You're able to track your personal
expenses for a budgeting program by using a credit card statement. Purchases can be
identified by category so you'll know where your money is going. Record-keeping will be
easier than if you used cash.
The Bad
- The convenience and buying power credit
cards offer may drive you deeply into debt if you're not careful. High credit limits may
lead to impulse buying and overspending could become a reality.
- Having a large number credit cards in
your name might hurt you when you apply for additional credit -- for a bigger purchase,
such as a car or home. If creditors see too many lines of credit, they may deny your
application because they think you're overextended. Keeping track of that many cards may
also become a financial nightmare if they're lost or stolen.
- Many credit cards have high interest
rates and annual fees. Not paying off the balance in full each month will result in added
debt. Continuing this cycle for a long period of time will do considerable damage to your
financial well-being.
Making Choices
Consider the pros and cons of making credit cards a part of your financial strategy.
Your decision is a very personal one. You should look at the positive aspects of owning a
card versus the possibility of overextending yourself and going into debt. Whatever
decision you make, ensure that good money management and common sense prevail.
Credit and Debt Calculators:
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• Should I pay off debt or
invest in savings?
• What will it take to pay off my balance?
• Should I consolidate my
debts?
• How Much Am I Spending? |
