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Are credit cards evil?


I've heard both sides of this argument for years now. I've listened to (and have a great deal of respect for) some of the prominent national voices that are anti-credit card. I've heard lots of people espouse the virtues of credit cards (most of whom were carrying significant credit card debt). I've always tried to stay in the middle ground. The way I see it, credit cards are like the internet. Can the internet be used for evil? Yes? Can the internet be used for good? Yes. If you are disciplined enough to 1) not make unnecessary purchases and 2) pay your balances in full every month, then go for it! If you can't do one or both of those: STAY AWAY!! Here are some tips: 1) Purchase only those items that you need to purchase. Every purchase should fit within your budget for that category for the month. (Read my article on Budgeting for real people.) 2) Pay the balance in full when the statement arrives. Since you aren't spending money that you don't have, this shouldn't be a problem, right? Don't wait until it's due, eventually you'll miss a due date and you'll be in trouble. 3) Be careful of reward programs. I've used frequent flier mile cards for more than a decade. I love them. We've flown around the country and this fall 17 of us will be flying to southeast Asia, 14 of us are going on frequent flier mile tickets. That's a savings of ~$28,000! But watch the fees on these cards. They've crept up so high now that many of them aren't worth it unless you're charging more than $40,000/year. Make sure the value of the rewards that you receive is less than the cost of the annual fee. 4) Never make a purchase in order to boost your rewards. Let me repeat: only purchase what you have already budgeted for the month! 5) Find a card that works for you and stick with it. Constantly changing credit cards will hurt your credit score. Every time you apply for a new card, your credit score gets pulled. Repeated credit checks hurt your score. 6) Whenever possible, use a credit card with a reward program for business purchases. Whether it's cash back, miles, hotels or some other reward, let your business pay for them. Business finances tend to work a little different than personal finances and often need to make use of short-term financing. This can be dangerous, however, and you must have a firm grasp on your cash flow in order to make this work for you. In short, credit cards are what you make of them. You alone are responsible for the good or the evil that can come from them. And if you get in over your head, please don't come looking for a bailout. I tried to warn you!



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