Let’s be honest, when it comes to personal finance…you either love it or hate it. But…
Credit cards. Those magic “all inclusive” passes to the world of buying things you can’t really afford with money you don’t actually have. I know I’ve warned you before about the evils of credit cards and credit card debt, but in the interest of fairness, there are always two sides to every debate, so to be fair I’ll tell you some of the reasons why having a credit card can sometimes be a positive decision.
There might be something to be said for having a credit card simply for the purpose of building credit (and a good credit score.) Caution: You still need to spend within your means. Use your credit card to make purchases that you can easily pay back within the next 30 to 60 days. That way, even paying the minimum balance on the card will still allow you to maintain a responsible relationship with your debts without accruing amounts that you can never hope to pay off. Taking into consideration that a FICO (credit) score is essentially determined by how well you pay how much you owe on time, very responsible use of a credit card will do wonders for your score. This also means that you should do a bit of research before you sign up with a credit card. Look for one with a competitive APR (average percentage rate), otherwise you’ll just pay interest for the rest of your life and your balance will barely budge.
Having a credit card can allow you to make important (sometimes necessary) purchase such as renting cars or other big ticket items (like tools and appliances), where you aren’t actually becoming indebted for a large amount of money, but merely making a temporary deposit. Just make sure you don’t wreck the rental car, because then the money is suddenly quite real.
Finally, life is unpredictable. Emergencies happen, from car accidents that necessitate auto repairs, to medical bills to (okay not technically an emergency) a great pair of shoes that you really need now but can pay off next month. I’m kidding about the shoes, of course. But that scenario is not uncommon, which is why it takes a serious amount of self control to actually use a credit card in a way that will benefit you. A credit card can help you out in a pinch, but please determine in advance what a true emergency is. It’s always better to have an emergency savings fund that consists of actual money rather than a credit card.
Say you are a very disciplined and responsible person when it comes to paying bills and balancing your budget. Credit card companies won’t like you as much as they will some of your less financially responsible peers, but they will still happily accept your interest payments. And those payments, made on time each month, will make for a very good credit score.
Bottom line, it isn’t the credit cards themselves that are bad. The saying goes, “The love of money is the root of evil,” not the money (or plastic) themselves. Therefore, use your credit card as just one financial tool in your toolkit, instead of a magic shopping wand, and you can reap some actual benefits from proper use of your credit card.