Credit Cards Are Not the Devil

By Jonathan Timar
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Some people have an irrational fear of credit cards. They are firmly convinced that these little bits of plastic are somehow possessed by the devil himself. The reasoning is that because credit cards can lead people into trouble that the cards themselves are the problem.

Obviously this is not true. Blaming the plastic, or the company that offers it to you, for your own financial problems or those of others is a wonderful way to avoid personal responsibility. It’s exactly the same as blaming McDonald’s because you ate their food and got fat.

Some people who have been in debt immediately cut up all their cards. What a mistake! Instead, develop the discipline to use credit wisely and built of your credit rating. I use my card every day, and never pay a dime of interest because I pay my bill off every month. Treat your cards like cash, only spend what you actually have.

Seven tips for making your credit cards work for you:

  1. Use them for everything! Not only does using your credit cards build up your credit history but nearly all card offer some kind of rewards program. Whether it’s frequent flyer miles, free groceries or new luggage from a catalogue, if you don’t carry a balance, these items really are free! I’ve got a fairly nice watch for free this way, and get free movie tickets and gift certificates quite often.
  2. Never close accounts you don’t use. Your credit score (also called a FICO score) is partly determined by your debt to credit ratio. This is the amount of available credit you have compared to your debt. Therefore, having available credit that you don’t use is to your benefit because it increases this ratio. Closing old accounts can actually hurt your credit rating.
  3. Pay them off every month. Never carry a balance on your card. If you carry only $500.00 on a typical credit card over the course of a year, you will pay $100 in interest! Why would you give your money away? Treat your credit card the same as your bank card, only spend what you actually have.
  4. Don’t use multiple cards. Why make your life more complicated than it needs to be? We have enough to remember on a daily basis, so don’t add more. That doesn’t mean you shouldn’t have multiple cards, having more than one, especially if they are different types is probably a good idea. But use them on rotation, not all at the same time. I tend to cycle through my cards every six months or so because this maximizes my potential to build more credit.
  5. If you receive an increase to your credit limit, keep it. You don’t have to take advantage of it, but the increased debt to credit ratio is good for you. Requesting a credit limit decrease can have the same effect as closing old accounts.
  6. Avoid store credit cards. The interest rates are too high, you can only use them in one place, and they don’t look as good on your credit report. If you are using your credit card the right way (see tip #3), they also are of no use to you. Don’t be sucked in by special no interest financing deals, the fees involved will almost certainly make up for it.
  7. Don’t take cash advances! Cash advances start accumulating interest the moment you take them, so even if you pay off your card every months you will still pay interest on cash advances. Usually, there is also a flat fee of several dollars for a cash advance too.

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