Credit Cards: Friend or Folly?
I can still vividly remember the time I held my first credit card- that crisp, shiny, hard piece of rectangular plastic with my name proudly embossed on it. That day was, amazingly, a monumental event for me. It signified maturity, something like a christening to the world of professionals. I was incredibly pleased with myself that I clamored to go to the mall and have it swiped. I can still recall my first purchase- a costly Levi’s jeans that was so trendy during that time. I fell in love with my credit card. It was handy and convenient. Even without cash on hand, I had purchasing power. It was, for me, my financial best friend. It was for these reasons that I immediately applied for another card. Having two best friends around, I felt like I was the luckiest person in the world.
However, as I have realized soon enough, the credit card world is not at all a bed of roses. My misconception and misuse of these simple yet powerful spending machines brought me to the threshold of debts and more debts! I was finally jolted when I totally maxed out my two credit cards. I then resolved to get rid of one before I totally plummet into a financial crisis. However, in order to do this, I had to sacrifice my bonuses- windfall that could have been allotted for savings and future use.
Credit cards can be beneficial for individuals who understand and practice the basics of responsible use of credit. I am well-aware of how handy it can be, especially during trying times, such as having to stretch your budget a little further, just in time for the next pay day. However, thanks to my learning experiences, I have come to realize that the power embedded into this tiny piece of glossy plastic card can also be dangerous, especially for impulsive buyers like me.
To fully maximize the use of credit cards, its utilization should be complemented with disciplined thought and action.
Here are some practical tips culled from my first-hand experience with credit cards
1. Before purchase, ask yourself this question: Do I really really really need this item at the moment? Credit cards can be very much convenient when making a purchase of an essential item, especially if you do not have the cash yet. Categorizing it as essential would mean that you really have a budget allotted for it, hence, you will have the money to pay for it in the future, possibly even before your billing date.
2. One credit card will suffice. I decided to keep one of my credit cards, the one with a smaller credit limit. Even if I was offered to increase my limit, I declined. I am comfortable with the idea that even if I max it out, I can still find the money to pay for it.
3. If you are in-charge of purchasing for your place of work, keep another card for business purposes only. That way you can segregate your personal finances from those that are work-related.
4. Pay more than the minimum. If you thoroughly think about it, paying the minimum for at least 6 months would actually be a loss on your part. If you really want to get rid of your credit card debts, apply for a salary loan and pay it in full. In my company, we can apply for a salary loan without interest, subject to salary deduction every payday. It is basically the same as paying the minimum every month. The only difference is that I have no debt to worry about.
5. Your spending habits should coincide with your ‘real’ purchasing power. If you are spending more money than you earn each month with the help of your credit cards, you are on your way to financial problems. It is okay to use credit for convenience, but you need to be certain that you can pay your balance in full each month, or within a reasonable period of time.
6. Make a conservative forecast. Sometimes, we really need our credit cards to purchase luxury items such as appliances or cellphones. Some stores who team up with credit companies offer payments on an installment basis. Assess how the monthly payments will affect your budget. If it will cripple you, do not jump into it. Better save and delay gratification for a few more months.
7. Always review your billing statement. Allot a few minutes to thoroughly study the details of your monthly credit report. With this, you can accurately track your purchases and balance. Somehow, it will give you information as to how your payment schemes actually affect your current debt. I, for example, realized that I am not actually paying off my debts since I just pay the minimum every month… a pathetic move really. Also, counter-check your billing statement against the receipts of payments.
8. If you plan to go shopping, stick within your shopping money allowance. Leave the plastic home.
9. Always pay your bills on or before its due date. Penalty fees are a waste. Also, if possible, try to pay your balance in full.
10. Maintain a good credit history. This will speak a lot about how you manage your finances, and of course, your credibility as a person. Good credit history reports are documents that you might be needing once you make big-time loan applications.
If used wisely, credit cards can be extremely useful in many occasions. But just as all debts, it is still money owed, therefore, should be paid diligently. Smart and disciplined use of credit cards can earn you a good and reliable friend. On the other hand, its abuse and misuse will definitely result to having an enemy to worry about.
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