Responsible Credit Card Use

Responsible credit card use is not something most people think about when they are using their credit card.  We get all caught up in the moment when we are out shopping.  The last thing that is on our mind in that moment when we pay for something on our credit card is responsible credit card use.  W e just know that we want what we see and we can get it without really having any money.

Yet, when it comes to building a strong financial future, most financial planners will tell you that the first and most important rule for financial freedom is DO NOT BUY ON CREDIT if you can not pay off the credit card at the end of the month. They will most likely go on to tell you that it is better earning interest on money rather than paying someone else interest on money.  GREAT ADVICE by the way.

Most people know this already, but far too many of us choose to ignore this reasoning and ultimately find ourselves up to our ankles head first in credit card debt. If you are one of these people, you are not alone.  Millions of American’s have put their financial futures in grave danger for the sake of personal convenience and immediate self-gratification.  From what was a rising popularity to use a credit card over that of cash, the unwise irresponsible use of credit cards has become pandemic.  Millions upon millions of consumers throw responsible credit card use out the window when a great deal or a ‘once in a lifetime’ opportunity comes along where they just have to have it or can’t live without it.  If you are one of these people, it’s never too late to start getting your feet on the right path that leads to financial success through responsible credit card use.

Are there any advantages to using a credit card of cash?  Well, there are some, like that of convenience or security when it comes to carrying a lot of cash around in your pocket; BUT remember that any consumer purchases made on a credit card are NOT tax-deductible and it is compound interest that you are paying on that interest if you do not pay off your credit card at the end of each billing cycle – typically 28 days.  Compound interest for all you novice credit card consumers means that you pay interest on both the principle and the already accrued interest.  Wait! It gets better…the interest continues to accrue daily on the balance that remains if you don’t pay it off.  This continues day after day, month after month, year after year, until you pay it off.

Here is the shocker for most people, because the credit card companies do not tell you this.  If you only pay the minimum on your credit card each month, you will NEVER be able to pay off your credit card balance in your lifetime.  Instead, you will be paying the credit card company tens of thousands of dollars on a relatively small balance of several hundred dollars since only  a few dollars of each month’s payment goes to pay off the principle (the amount you originally charged on your card).  Success Tip (if you haven’t already figured it out): If you are not in debt with your credit cards, do not let it happen! PAY YOUR BALANCE OFF AT THE END OF EVERY MONTH!!!

If you do not have a credit card and want one, here are some things to remember to be a responsible credit card user:

Shop around for the best credit terms.   It is always better to find a fixed interest rate a low variable rate. It may look appealing to get a credit card with zero interest for 12 months with a variable rate, but in the end, if you do not pay off your balance at the end of each month of use, then all the savings will be lost due to high interest rates that most often follow.

• Understand the terms of the agreement before you accept a loan or credit card. Did you know that a credit card company can check your credit periodically and if they find anything that might appear to increase their risk in extending you credit (even if the report is inaccurate) they can raise your limit to the highest interest rate allowable by law.

• Save money each payday for emergencies. Even though you have a credit card, it is always best to save for those unexpected emergencies that always seem to pop up in life. You do not want to use credit cards on large purchases or on emergency expenses if you are not able to pay off the credit card by the end of the billing cycle. If you save regularly, in most cases you will have enough cash saved to cover your emergency.

• Set a monthly limit for charges and stick to it. The best way to see that you do not overspend is to establish a credit card budget for the month. This should be an amount that is within your ability to pay off based on your month net income.

• Shop as carefully with credit as you do with cash. Credit cards, after all, are a representation of the actual cash you have to pay the credit card debt with when it comes time to pay it off at the end of the month.  If you don’t have the money in the bank for a purchase, reconsider that purchase.  One way to be sure you have enough at the end of the month to pay of your credit card is to set make up some dummy money in the amount of what your actual budget for credit card purchases is for the month and stick it in an envelope. Every time you use the credit card, take the amount of your purchase from the envelope and mark down the balance on the front of the envelope that remains in the envelope. When all the money is gone in the envelope, you know to stop using it for the month. If you use accounting software such as Quicken or MS Money, you can set up a budgeting account to monitor it.  Every time you make a purchase, enter that purchase so that it deducts it from your account budget.

• Don’t take on monthly credit payments unless you’re certain you can meet them. As mentioned earlier, if you can’t pay it off by the end of the billing cycle, do not buy it. It’s that simple.

• Pay bills promptly and in full to keep finance charges low.  One way to never have a late charge and never have to pay interest on a credit card is to make your payment early.  For instance, if your credit card payment is due on the 15th, see that you have the payment mailed no later than the 5th. This give you time to confirm that it has been received, and if not, you will still have time to send another payment or make a payment over the phone in order to avoid late fees. Late fees are nothing more than ridiculously high interest masquerading as a late fee. In the end, it is all an expense that you did not need to pay.

• If you charge day-to-day expenses, pay them in full each month.  Credit cards are a fast and easy way to pay for your day to day expenses, and it is a much safer solution than carrying large amounts of cash around. But, as mentioned earlier, if you can’t pay it off by the end of the billing cycle, do not buy it.

• Keep credit card information (including phone number of issuer) in a safe place in case your cards are lost or stolen.  This is a biggie!!! In the event your purse or wallet is stolen, you need to have a plan to recover your personal information as quickly as possible. Have a secure and secret place that you keep your personal credit records so in the event that they are lost or stolen, you can call to cancel them immediately.

• Keep copies of sales slips and compare charges when bills arrive. If there’s a mistake, call your issuer right away. It is not the credit card company’s responsibility to make sure all of your purchases are accurately recorded. It could either be by mistake from the store you purchased something from or a clerical error by the credit card company. Either way, it is your responsibility to see that everyone is on the same page as it concerns the accuracy of your credit card statement.

• Become ACCOUNTABLE! If you are prone to shop impulsively, find someone that you consider your friend (WHO IS NOT PRONE TO SHOPPING IMPULSIVELY) and tell them you want to be held accountable for your credit card spending habits. It may seem a little bit far-fetched to some, but accountability is not a bad thing when it comes to protecting your financial future.

This all said… we are living in a credit-crazed society that promotes doing everything fast, whether it is getting a meal or owning all the toys and trappings that the advertising and marketing industry had told us we need. We have become by and large, a society of hardworking people that spend what we don’t have to enjoy the American dream that the advertising and marketing industry says we need to live life to its fullest.

Unfortunately, the majority of those who buy into this deceptive marketing practice of credit card companies and banks are usually the ones who end up loosing their future success and financial security at the expense of being indebted to the lenders who sold them on such an unrealistic “success through credit “ illusion in the first place. One word of advise resounds from the halls of wisdom and understanding to all who would choose to test the waters of achieving the American dream through borrowing and credit – DON’T!

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