Credit Cards: The Ultimate Trick or Treat

by Kevin on October 31, 2008


(Photo by Plutor)

Today is Halloween… the streets will be filled with (mostly) children with bags outstretched waiting for a piece of candy at your front door. Most of them will be polite and wearing a costume. (Actually in our area we didn’t get a single trick or treater last year. Sad.)

But this isn’t a blog about Halloween. This is a blog about personal finance.

Credit cards scare a lot of people

To many people out in the world credit cards are nothing but evil tricks played on them by massive corporations. Today being Halloween I thought I’d point out the tricks and the treats of using a credit card.

The average American is several thousand dollars in credit card debt. I’ve read estimates of anywhere from $8,000 to $17,000. Any way you cut it, credit card debt isn’t good news. I’m not a promoter of credit card debt. However, I do believe in responsible credit card use.

Credit card tricks

Interest or finance charges

Paying 10-25% for just about anything especially assets that are immediately consumed or depreciate very quickly is a poor decision. Remember, depreciating assets and credit don’t mix. (And by credit I mean carrying the balance and paying interest on the charge. Credit in this instance, for me, doesn’t apply to charging a purchase and then paying it off.)

Annual fees

Why would you pay for something you can get for free? Credit card companies promote added benefits to cards that have an annual fee. In some instances it may actually be beneficial to have the card, but my guess is for 99% of the population this is not true. I’ve defined annual credit card fees as dumb money.

Double-cycle billing

Some very sneaky credit card companies use this trick: they charge you double interest for your balance. Not all credit card companies do this, but make sure to read the fine print of your agreement. You can learn more about this type of billing at All Financial Matters.

Debt in general

This is what this blog is all about. I’m reinforcing the first point here. Debt is dumb. Plain and simple. Spend less than you earn. Save your money. Don’t buy frivolous things. This is a trick you play on yourself.

Collections agencies

An especially tricky trick of the credit card industry — companies designed to force you to pay your bill. While I do think this particular industry is especially tricky, I also think you should be forced to take personal responsibility for your situation. If you charged it you should pay off your balance.

Credit card treats

Rewards

Credit card rewards are the number one reason I use credit cards for every single purchase we make. If someone will accept a credit card, we use it to get the maximum benefit. For me this is the ultimate treat: getting paid to buy things you would buy even if you didn’t use a credit card. You can then apply that free money toward other things.

I’m not a big fan of non-cashback rewards programs simply because you can’t pay down debt or save money with airline miles. Cashback is simple and the cash can be used for just about anything you want.

One stop shop for your bills

An added side treat of using a credit card for all of your purchases is that you send one payment to one company for all of your bills. Obviously you probably can’t charge every single bill to your credit card, but most of your service providers (utilities, grocery stores, gas stations, etc.). I wish our mortgage company would accept them!

Automatic payments

Another treat of using credit cards is you can setup automatic payments both for your charges and also for your payments.

Credit cards are about balance

Looking at the above two lists it looks like the tricks outweigh — or at least outnumber — the treats. My opinion on this is credit cards are not evil. They are a tool just like a garden hoe, a knife, and a gun. If you use the tool properly you will get the desired result. If you abuse the tool, there will be consequences to pay.

Stay safe out there trick-or-treating — both tonight and with your finances.

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Kristy’s Weekly Roundup | Master Your Card
November 2, 2008 at 1:28 am

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chrome October 31, 2008 at 11:11 am

i think there really aren’t that many “tricks” with credit cards as long as you don’t carry a balance. The only thing to look out for would be annual fees, other than that, you shouldn’t really go over the limit and such. just pay your bill on time and you are good to go.

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