Credit Cards, Friend or Foe?

We've all heard the cautionary tales of credit card debt woes. Yet despite all the warnings and dangers, it seems most Americans carry and utilize this form of currency. What is it that is so alluring about those little slips of plastic, that the average American can't seem to resist adding them to their wallet?

Credit cards certainly have their dangers. It's easy to lose track of spending when it's not tied directly to your bank account. It's easy to justify a splurge based on "available balance" instead of financial reality, or to rack up a balance anticipating future windfalls that will assist when the balance comes due. I've worked in collections and heard first hand some of the heart wrenching tales of those entangled in credit card debt that grew each month due to interest, overdraft and late charges. They can be a portal to financial disaster if not handled with care.

I have to say, unlike the tales of sorrow I heard in collections, I have found credit cards to have a positive effect on our finances. We carefully evaluated each offer that came in, and chose to open a few cards that we felt would reward us the most. Mainly we use two cards with 5% back in categories that change each quarter. By making sure we use the right card for our purchases, we maximize the financial return on our cards.

There is also added comfort of knowing that there is a barrier between thieves and your hard earned cash. One of the banks we have a card with has actually notified me of unusual spending before I even realized my card was missing. `

Credit cards can also offer some flexibility when budgets run tight. In a lean fiscal situation a credit card can bridge the gap between an empty pantry and a pay check, but it's exactly those situations where one must proceed with discipline. While they can help get from one point to the next, it's important to pay the bill of each month, the last thing a household on a tight budget needs is interest and finance charges, let alone overdraft or late fees!

At the heart of the issue, credit cards are what you make of them. If you are easily seduced by all things shiny or struggle to keep on budget, it is possible those wallet sized sirens could be your downfall. It might be better to even consider the pre-paid route if you are looking for some of the benefits without the financial risks. If you can keep in mind that, ultimately, you're still spending your money, they can be a useful tool in your fiscal belt. Credit cards, like so many other things can be of use or detriment, all depending on how they're handled.