Responsibly Managing Your Credit Cards

Though credit cards are not the only cause of consumer debt, they’re by far the easiest type of debt to accumulate. Some people advise “cutting up your plastic” in order to prevent more debt, but it’s much more effective to retrain yourself to use those little pieces of plastic responsibly.

How to Use Credit Cards Responsibly

The first rule, the ONLY rule, is this: you must pay off your credit card bill in full each and every month. Once you’re able to consistently do that, there are currently only two reasons I’d recommend using a credit card:

1. Convenience
2. Rewards

Convenience

No, not the convenience you’re probably thinking of. I’m talking about the convenience of recordkeeping. Credit cards are easier and more accurate than cash for budgeting and recordkeeping. If you make almost all of your purchases with a credit card, you’ll receive a documented record of your spending each month. BUT, the convenience of credit cards has one main catch—the temptation to make purchases on credit by not paying off your balance in full each month. If you do intend to use a credit card after getting out of debt, you must pay off the balance in full each month.

Rewards

Using a credit card for the rewards make sense, a lot of sense, but again, you must pay off the balance in full each month. Failing to pay the balance will only get you right back into debt. Here’s a list of three popular rewards credit cards.

Alternatives to Credit Cards

Debit cards and prepaid credit cards can give you the convenience of credit cards while eliminating the temptation to spend more than you have.

• Secured cards: A secured credit card has a savings deposit to back it up. They prevent excess spending on your part because your “credit” limit is based on the amount you have deposited into the secured account
• Debit cards: These cards work just like credit cards but pull money directly from your bank account as you spend it. Debit cards can be a great way to prevent excessive spending since if you don’t have enough money in your account to cover a purchase, the transaction typically won’t get approved unless you have overdraft protection.
• Prepaid credit cards: All major credit card companies offer prepaid versions of their credit cards. These work like phone cards: you pay for a certain amount of “credit” and then spend it down, refilling the card with new cash when necessary.

If you want to continue using a credit card but are concerned about racking up a balance that you can’t afford to pay in full, another option is to contact your credit card company and request that they lower your credit limit (the amount of money you can charge to the card) to a very low amount, such as $250 or $500. That way, you can use the card without the prospect of spending more than you have. But be careful. This action CAN have a detrimental effect on your credit score.

Getting along without some sort of credit card or credit card look-alike in today’s society is increasingly difficult. I must admit, I LOVE CASH but there’s nothing more disconcerting than realizing at the end of a week that you cannot remember what you spent that $32 on. Yet, you’re still $32 short. That doesn’t happen with a credit card, a debit card, a prepaid credit card or a secured credit card.