Credit Cards are a Tool
I have always held that credit cards are a tool. The people who misuse their credit cards don’t have the discipline to use them to their advantage. And the people who give out credit cards often do so without following good lending criteria designed to minimize the risk of putting credit in the wrong people’s hands. But credit cards themselves aren’t evil. In fact, I love my credit card for a whole bunch of reasons:
- Since I pay off my credit card religiously, and I have a no-fee card, there is no cost to using my card no matter how many transactions I do. Many bank accounts come with a debit card transaction limit and once you go over that limit, it can get pretty expensive. (There are some accounts that have no limits at all, but they aren’t always convenient for a body to use.)
- Using a credit card for all my transactions saves me having to walk around with gobs of cash. Lose a card and it can be replaced at no cost. Lose cash and you’re very sad.
- When I work with families, I ask for six months worth of their credit card statements (along with their bank statements) so I can see where their money has been going. The credit card statements show a very clear picture of what has gone where so you can look back and do an analysis of your spending. When people have been spending tons in cash, there’s no telling where the money went unless they’ve kept meticulous records, which most people don’t!
- Every penny I spend on my credit card earns me points that I routinely convert into groceries or other items (like my new barbeque) saving me a not insignificant amount of money.
- Some credit cards also offer purchase protection, so if the item is lost or stolen within a specific period – usually 90 days – the card will replace the item. This came in mighty handy one year when I lost my cell phone while I was on book tour our west. Others offer travel insurance of all kinds that can save you big bucks on everything from travel medical coverage, to collision coverage on a rental car, to trip interruption or cancellation coverage. And then there are all the free flights you can rack up just by signing up for the right card.
- Traveling with a credit card beats the b’jezus out of pulling money out of foreign ATMs and racking up huge fees. I also travel with a couple of hundred in cash, and then use my credit card for absolutely everything I can. When my daughter went to Europe last March on a school trip, she couldn’t help but use cash since she didn’t have a credit card (she’s under age). Each withdrawal came with a hefty fee.
- Using a credit card and paying it off in full every month is one of the best ways to build a great credit rating, which will be very useful when it comes to apply for a any kind of future financing.
Credit cards aren’t for everyone. According to the Stats Man, Canada’s outstanding credit-card balance has more than tripled, to almost $40 billion, in the last 10 years. In the U.S. the total outstanding credit card debt at the end of 2002 was $750.9 billion. So while credit cards can be a terrific tool for the people who have the discipline to use them to advantage, there are a lot of folks out there who have fallen into debt traps using credit cards.
The best way to use a credit card without falling into a debt hole is to only spend money on the card that you know you can pay off when the bill comes in. That means keeping track of how much you’re spending every time you whip out the card.
Keep a notebook with a running balance of what’s in your bank account. Each time you use your credit card, deduct the amount you have spent – as if you’d done a debit – from your notebook. Then, when the bill comes in, you’ll have all the transactions already debited from your balance, so the money’s there to pay off the bill.