Wednesday, January 28, 2015

To credit or not

To enroll in credit cards or not. That was a point of discussion during my last workshop. With so many Americans in over their heads in debt, whether or not to use credit cards is worth considering.

The setback to not owning a credit card is it makes it harder for you, as a consumer, to build a credit history. As I mentioned in a prior post, to qualify for a big item purchase such as a car or a new home, it is important that you use credit to show lenders you're trustworthy and responsible enough for a loan. There's always debit cards, but they don't work for everybody. If you're the type that likes to see purchases deducted from your bank account as they're made, then a debit card is for you. But if you're like most people who prefer to make a one time payment on a certain day every month, then credit is for you. Either card requires holders to be diligent about having enough cash stored in a checking account to pay off balances. That, and the discipline to spend only within your means.

Some financial specialists may advise the public to steer clear of credits only if an individual is carrying too much debt and is trying to pay it off. Other than that, when used wisely, credit cards can be useful in several ways:

1. Budgeting. Online statements can now be downloaded and converted into different formats so users can evaluate their spending habits.

2. Predictability. Holding off payment until the end of the month gives holders that extra reassurance that a check will not bounce at a bank. This is especially true for those who don't check their account balances frequently.

3. Rewards. Many credit cards now offer reward points to customers that can be used toward dining out, groceries, and retail purchases. Others can be used to reduce the outstanding balance.

4. Security. Financial institutions protect holders from card theft or unsolicited purchases. Others go so far as to replace the purchase of a broken or lost item. Then there's the security of not worrying about anyone breathing down your back as you key in a pin number.

Encouraging customers to refrain from holding any credit cards is not wise advice. A big spender will remain in debt whether she is holding a credit card or cash. What is wise is to teach consumers the value of handling money as a precious commodity, and not an unlimited resource.

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