CNN posted a good article on the hazards of credit card use. The short synopsis is that any way credit card companies can screw you out of a few more pennies is fair game.
There's nothing inherently wrong or bad about credit cards in and of themselves. They're simply a financial tool. When used correctly, credit cards can reduce hassle in your life. They can help you track spending, they often provide insurance coverage against transactions gone awry, and they often come with benefits like gas, air miles, or cash back. On the flip side, credit cards (or lousy vendor security practices) make identity theft easier. Credit issuers can change the rules at any time, which makes it easier to get caught with some nasty charge or other, and some people find it harder to control their spending with credit cards; in its most extreme form, that can get very, very ugly and expensive.
There are right ways and wrong ways to use credit cards. Right ways include (but are by no means limited to) things like this:
To thine own self be true
Credit is not for everyone. If it was, you wouldn't see default at the rate it exists today. Before you start using credit, either as a new cardholder or after a hiatus, make sure you understand the ins and outs of consumer debt and ask yourself if you're ready, willing, and able to assume the responsibility of managing your spending appropriately. Recognizing that credit cards don't fit into your life is not a moral failing. Hiding from the truth and subsequently getting into trouble. . . well, that's potentially a different story.
Don't carry a balance
Even if it's 0% for however many months, if you don't normally carry a balance, this is no time to start! It's easy to let the 0% period lapse without paying the balance off through pure forgetfulness. Alternatively, if you rack up a balance that you mean to pay off and then something bad happens that sucks up your cash reserves, you're stuck with no cash reserves and a credit card balance that is about to start costing serious coin. Yikes!
If you do carry a balance, pay that sucker off
I bet you'll sleep better just knowing that you're not throwing interest payments down a rathole anymore.
Minimize your exposure
I don't know about you, but I don't always feel groovy about the post office. I started having doubts a few years ago when I received a letter that had been mailed to my correct address a few months before, returned to the post office with the notation Not dis dres, resent, returned, and resent a third time, at which time it finally reached me. This wasn't just any old letter, either: it was a credit card bill.
This particular story had a happy ending. When my credit card bill didn't arrive, I phoned the issuer, got my balance, and sent in my check with a letter containing my account number and payment instructions to the billing address. I then called the post office and gave them what-for, for whatever good that did.
Thanks to modern technology, you can eliminate all postal risks in a single blow by setting up online automatic payments to pay the balance in full every month. Just make sure there's enough money in the account!
Monitor your spending and adjust as necessary
No matter what your credit card limit is, if you're spending more money using credit cards than you would using cash, credit cards aren't working for you. That's the time to go on an all-cash diet until you can rein in your spending.
Stay well below your credit limit
There's no better way to avoid an overlimit fee. If you absolutely, positively need to push the limit for a big purchase, you can always call your issuer to ask for a higher credit limit. A higher limit is not a license to spend, though: don't do this if you can't pay off your big purchase in cash at the end of the billing cycle. If you're at risk of abusing a higher credit limit, you're better off switching to cash.
More is not always better
Having too many credit cards puts you at risk of losing track of something and accidentally costing yourself money. One accidental late payment can cause your interest rates across the board to skyrocket (something called universal default). Having too many cards can worsen your credit score in and of itself, and that could hurt you in buying a house or possibly even in getting a job later on. Everyone's different, but having one primary credit card and a spare, kept in separate locations, has proven to work out really well for me.
Ask
If something goes awry and you get hit with a fee, you can often get it waived or lowered if you ask nicely. If you're in a financial pickle, most credit card companies would rather get something than nothing. Alternatively, thanks to the free market, which lets you switch to any credit card issuer that thinks you're worthy, credit card companies have plenty of incentives to waive fees and look like good corporate citizens, thus keeping your account.
Free is a very good price
Unless you have a special reason for using fee-based cards (like frequent travel using rewards-based air miles, which are never free as far as I know), no-fee cards trump fee-based cards just about every time.
Reward me!
For me, credit cards are all about the rewards. I get free cash on one card and free coffee on the other. I never carry a balance and my spending habits are no different with a credit card, so what's not to like?
That's just a short, off the top of the head brain dump about making credit work for you. Credit card companies call people like this deadbeats because they cost the card issuers money with zero return on investment.
Deadbeat.
I think it's got a nice ring to it, don't you?
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