Credit Cards – Best Friend or Worst Enemy?

What relationship do you have with your credit card?...

It seems today that people are growing increasingly weary of credit cards. Most likely due to the fact that so many find themselves staring at a massive mound of debt every month. We’re not talking about just individuals with bad spending habits (although that demographic is a large contributor), we’re talking about small business owners, working people, and others who are trying to make ends meet. Credit cards have certainly allowed people to invoke a lot of pain on themselves, which is why the plastic has developed a very poor reputation. On the other hand, why do they prove to be incredibly beneficial to so many others?

The Answer: You choose the relationship you want with your credit card. Your actions determine if you want your card to be your best friend or your worst enemy.

Many financial gurus such as Dave Ramsey, have ripped credit cards, insisting that they are the worst possible thing for anyone to get their hands on. And he is very much so right in some cases. Some people have racked up hundreds of thousands of dollars of debt and now find themselves in a hole a mile deep. But the truth is, prevention is always better than the cure.

It is true, there is a great temptation to overspend especially when you have the ability to. When you shop with cash and have $100 you know that once you spend that $100 you’re done. No ifs, ands or buts. Now if you shop with a credit card and say “I’m only going to spend $100” but yet you have a $5,000 limit, you can very easily go over your set budget and allow yourself to be enticed…especially by the items that have “SALE” on them.

This is why credit cards have a direct link to one’s self control. If you don’t have good self-control it’s time to start disciplining yourself… for your own sake.

So how are they good?

There are many benefits to credit cards but it is remarkable how quickly those benefits can be erased by a single act of irresponsibility. The statement is true: if you use your credit card correctly you can practically earn free money or rewards for doing your necessary shopping. Most credit cards have some sort of “rewards program.” If you apply and don’t qualify for some sort of rewards program it’s probably because your credit isn’t very good or you need to establish your credit. So you’ll have to build up your credit for a little bit. If you want to see what you can qualify for, click here to compare credit cards.

Once you have a rewards paying card you can earn cash back on every purchase, points to your favorite stores, miles for airline travel, and all kinds of other things. These rewards, can really rack up by the end of the year and provide a nice little bonus just for buying the things you need. Don’t miss out on the free money! If you want to see what kinds of rewards cards are out there check this out.

Here are five key rules to anyone who has a credit card(s). These rules will help you avoid ruining your credit, avoid finance charges, avoid debt in general, and help you to maximize your rewards!

1.) If don’t you don’t have it, don’t spend it

Just because you have a credit card does not mean that you have more money. Treat your credit card like you would a debit card. You can only spend what you have. Discipline yourself in your spending and don’t make excuses that will lead you to overspending. Be responsible.

2.) Pay on time, pay in full

Don’t ever miss a payment! This will hurt your credit score and rack up interest. Also always pay in full. Whatever your statement balance is, always pay the full amount. If you don’t and let that balance go to the next period you will accrue finance charges and immediately lose the value of your rewards. So always pay on time (or early) and pay the full amount.

3.) Don’t exceed half your limit

It is a commonly known credit card principle to not exceed half of what your credit limit is. This is because it will hurt your credit score by making you looking desperate and financially unstable. This status makes you less likely to get approved for other credit opportunities. It can also help you to control yourself.

4.) Don’t Apply to Much!!

Every time you apply for a credit card or any sort of loan your credit score gets hit with what’s called a “hard inquiry.” A hard inquiry means that the creditor is checking your credit status to see if you are worthy. Unfortunately, this hurts your credit score and knocks off some points. This will hurt you every time you apply and continuously lower your score. So don’t apply to much and only apply if you know you can get approved! Credit Karma is a phenomenal resource to help you with your credit and know what you are eligible for.

5.) Live within or below your means

My economics professor once said “If you want to live comfortably financially, always live below your means, but if you want to live spoiled, live within your means.” This is not a rule directly for credit cards but I do think it applies in this context. Don’t try and live a life that you can’t, because at some point it will come crashing down to reality and the day of reckoning will happen. Rather live disciplined, always being honest with yourself and others!

Thanks for reading and I hope you found this post helpful! If you have your own rules or principles or even a story about credit cards, comment below!

Cheers & God Bless

-Matt

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2 Comments on this post.

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  • Jo Smith
    23 December 2016 at 1:26 pm

    Credit cards and debit cards/cash both have pros and cons. I would only use credit cards for bigger purchases, and complete payments on time so interest doesn’t build up. Credit cards also build credit, unlike debit cards and cash. For example, a mutual friend couldn’t purchase a car because she didn’t have credit history. But I would totally get a debit card ,too.

    Leave a Reply
    • Matt
      23 December 2016 at 1:54 pm

      Very true Jo!! Thanks for commenting! I appreciate your input. Credit cards are definitely important for building credit!

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