Using Credit Cards

Many people look at credit cards as free money or play money. Since they're not paying cash for an item but they still get to take it home right away, they see credit as a way to get great stuff without worrying about paying for it. However, a few weeks later, the credit card bill arrives in the mail and the best intentions of paying for the item are gone.

With all the problems that credit cards can cause if they're not used properly, why use one at all? Here are a few reasons:

• Credit cards offer convenience and a safer alternative to carrying cash. If your card is lost or stolen, you’re generally responsible for no more than $50 of unauthorized charges if you contact the credit card issuer as soon as you realize the card is missing.
• Some businesses, such as rental car companies, require a credit card to make a purchase.
• Smart credit card use helps you establish a good credit history. When you purchase something with credit, and then pay it off promptly, it shows that you can manage credit responsibly.

The following tips will help you take advantage of the benefits of credit cards without falling prey to the lure of easy money.

1. Use a credit card only for important items.
2. Since a credit card purchase is essentially a loan, ask yourself, "Would I take out a loan to buy this?" before using the card.
3. Instead of using a credit card to make a big purchase today, wait until you’ve saved enough money to make the purchase with cash and avoid owing any money on it.
4. Keep track of credit card charges by writing them in your check register and compare charges to the amount of money left in your checking account. Be careful not to charge more than the current balance of your checking account. That way, you’ll have the money to pay your credit card balance in full when the bill arrives.
5. Choose cards that have no annual fee and shop around for the lowest interest rates.
6. If you think you’re getting in trouble with credit cards, stop using them.

One way to control credit card expenses is through a "secured" credit card. These cards work just like credit cards, except they require a deposit as security that you'll pay off the balance. For example, if you deposit $300, the bank gives you a card with a credit limit of $300 and you can't charge more than $300. Be warned that there may be other fees involved with these cards.

See Tips for Using Credit Cards for more ideas on making your credit cards work for you—not against you. The Credit Comparison Worksheet helps you find the credit card with the lowest rates and fees.