Avoid the Hidden Dangers of Credit Cards

Credit cards are one of the most common forms of consumer credit in the U.S. However, they are extremely controversial. People tend to have extremely strong opinions about credit cards. On one side, we have those who vehemently criticize credit cards as the modern evil that has brought financial ruin to so many Americans. At the other extreme, we have those who see credit cards necessary instruments for establishing and improving one's credit history and for learning financial restraint ("Credit cards," n.d.). So, which side is correct? Do credit cards spell financial doom or are they a useful and valuable tool in our society today? In order for us to honestly answer these questions, we must fully understand the advantages and disadvantages of credit cards.

First, think about some of the possible advantages of having credit cards. The first thing that comes to my mind is convenience. Credit cards are so tiny that they can easily fit in your pocket. Also, most places readily take credit cards these days. And we cannot forget that credit cards can minimize our need to count money at the cash register or to wait to buy that must-have product until we get our next paycheck. Therefore, it is accurate to say that credit cards are relatively "convenient to carry and use" ("Credit cards," n.d., Pros section). Moreover, credit cards are accepted in quite a number of foreign nations, making traveling or online purchases a whole lot simpler. Credit cards also give you much more peace of mind than cash, since cash, in most cases, cannot be recovered if stolen or lost. Additionally, many credit cards offer special awards (e.g., cash back rebates) for making so many purchases a year. Another advantage of credit cards is that (as long as you have not reached your credit limit) they can serve as an invaluable aid in times of emergency (e.g., unexpected medical bills or emergency repairs on your vehicle). And just as their supporters insist, credit cards can help you build your credit up so you can accomplish the different goals in your financial future, such as buy a new car or purchase your own home ("Credit cards," n.d.).

However, there are probably just as many (if not more) cons to credit cards as there are pros. For example, credit cards might actually be too convenient at times. When using cash or a checking account, the reality of how much and how frequently you are spending is right in front of you on a regular basis as you watch your money decrease. The true bulk of your spending when using credit cards, though, can completely catch you by surprise if you do not track your purchases since you only receive a statement of your purchases once a month. Also, credit cards can produce any number of extra, unforeseen costs, such as hefty cash advance charges or considerable penalties if your payments are late or if you cannot pay your statement balance in full each month. Although credit cards are safer than using cash at times, they can still be stolen (or even simply found) by others and then used to purchase items that you will never get to enjoy. In addition, unlike cash, there are still many establishments that refuse to take credit cards completely or that may not accept your particular variety of credit card. Finally, the opponents of credit cards are not entirely wrong. Credit cards have caused and continue to cause many people endless financial problems ("Credit cards," n.d.).

In reality, the nature of credit cards actually depends upon the individual credit card holder. Ultimately, "credit can serve us-but-it can also master us . . . it depends on how we use it" (Turner, 2006, Slide 5). If we use credit cards wisely, they will enrich our lives. For example, if used correctly, consumer credit can be a key step in building a strong credit history. On top of this, properly utilized credit provides peace of mind now since it can cover unexpected expenses (i.e., medical bills and thefts). But if we abuse credit cards, they will only cause us years of unnecessary grief (Turner, 2006).

Since consumer credit (especially credit cards) can make your dreams plausible or shatter them in a million pieces, I have put together the following list of tips to help you use credit cards responsibly (ARA Content, n.d.; Army.com, 2008; Hamilton, 2007; Turner, 2006):

Always keep a daily record of all of your purchases and/or cash advances using your credit card. This will ensure you will not be surprised at the end of the month by the seemingly endless charges on your credit card statement.

Acquaint yourself thoroughly with all the hidden costs of your credit card. That way you will be completely aware of what you are getting yourself into owning the card, as well as using it.

Before you make a purchase with your credit card, always evaluate the importance of your purchase, as well as its consequences. Is this purchase really worth all the fees, charges, and interest?

If you cannot pay off your credit card balance at the end of every month, make sure you can by the end of 90 days. If a purchase takes you beyond this limit, do not use your credit card or you may face a never-ending cycle of costly fees and interest, unless it is absolutely necessary.

Always pay your bill before the due date. Late payments add on needless (and costly) late penalties and can cause your credit rating to go down.

Never forget the importance of credit. How you use your credit now will affect what other forms of future credit you will receive, what your current and future interest rates will be, where you can live (many landlords require a credit check), what new accounts you may open (e.g., cell phone or utilities), and what type of life you and your family will have.

References:

ARA Content. (n.d.). Using your credit responsibly means you'll always have credit to use. Retrieved June 13, 2008, from Local Info Web, Kattskill Bay, NY Web site: http://kattskillbay.ny.localinfoweb.com/Story-2706-Using-Your-Credit-Responsibly-Means-You-ll-Always-Have-Credit-to.aspx

Army.com. (2008). Money: Tips for using credit wisely. Retrieved June 7, 2008, from http://www.army.com/money/credit_wisely.html

Credit cards...to have or not to have? (n.d.). Retrieved June 5, 2008, from University of California at Berkley Web site: http://www.ocf.berkeley.edu/~knffjw/idsproject /prosconsproject.html

Hamilton, T. (2007, August 19). Thinking long term using credit responsibly. The Free Lance-Star. Retrieved June 13, 2008, from http://www.thefreelancestar.com/News/FLS/2007 /082007/08192007/309362

Keown, A. J. (2007). Personal finance (4^th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

Procter, B. (2008). Shopping for consumer credit. Retrieved June 3, 2008, from University of Missouri Extension Web site: http://extension.missouri.edu/xplor/hesguide/famecon /gh3344.htm

Turner, J. (2006, May 23). Credit-How much can you afford? Retrieved June 5, 2008, from University of Florida Web site: http://money.ifas.ufl.edu/credit/pdf/afford.pdf