Pass Me the Credit Please

The credit crunch pounded our nation two years ago, but try living without one of these little plastic treasures and soon discover how quickly things can get complicated.

Renting a car at most major car rental agencies, checking aboard a cruise ship or even checking into a hotel is difficult--if not impossible--without the familiar Visa, Mastercard, Discover or American Express logo. Renting a car without a credit card will require a significant cash deposit or may not be possible at all. Online purchases almost certainly will require a credit card to complete the transaction.

When the economy took a nose dive in 2008, I consciously decided to limit my use of credit cards to just essentials and emergencies. I had one credit card with a low 9.9% interest rate--that is until I was late on my first payment. After that, the interest rate immediately shot up to 29.99%. As high as that amount was, there are lots of credit cards available that charge significantly higher rates than that.

After a bit of online research, I discovered that some of the best credit cards deals are available from online banks and credit unions. Most offer no annual fee cards and low introductory or permanent interest rates for those who carry a balance from month-to-month. I was able to open a new credit card, with a higher limit, at my local credit union with the 9.9% interest rate restored.

For those considering a new credit card or those who may be looking at their household budget more closely these days, here are a few things to think about before pulling that plastic out of your wallet or purse:

Pros:

They are a convenient method for to consolidate all expenditures into a single monthly payment. The monthly statement also is a great reminder for tax time.
Using a credit card avoids the need to carry large sums of cash.
They are widely-accepted at most businesses in this country and throughout the world.
Most credit cards provide great liability protection against fraudulent purchases and loss or theft.
Save time at check out counters and gas pumps by simply swiping your card.

Having a credit card is a lot more than just the convenience it brings to your life. Managing credit can be a challenge in the best of times, and with the economy in the dumps, it can result in many sleepless nights when/if you are unable to make your payments on time.

Cons:

If you do not pay off your balance each month by the due date, interest payments, and late fees can be very expensive. Set up an automated payment to avoid late fees.
Some cards charge an annual fee or have other charges can be expensive. Don't forget to factor these costs into your decision about whether to use credit or not.
There is an increased temptation to use your card for purchases you really don't need. Think twice before swiping the card.
Never use a credit card to pay for another credit card or for anything tax-related. There are legal implications to doing this. Avoid it.
Missing a payment can negatively impact your credit score.

Late fees add up very quickly--sometimes as high as $35 for being just one day late. If this happens, call your credit card issuer and ask for a courtesy credit for the fee. They may say no, but they just might say yes. Better yet--don't be late.

Using credit is a privilege, not a right. It requires good money management, a stable income and wise purchases.