October 7th, 2008
Do You Really Need Credit Cards?
Given the state of the economy and the rising debt burdens of millions of Americans, many people are left wondering whether they really need credit cards. The answer to this question lies in how well you can manage your money and whether or not you are prone to overspending. Let’s take a look at some of the reasons why credit cards are essential for some, and deadly for others.
Pro Credit Card
Credit cards are a useful tool and when used correctly, they can benefit you in many different ways. While many people focus on the main benefit of being able to purchase something in an emergency or whenever they want, even if they don’t have the cash on hand, there actual main benefit is what a credit card can do for your credit score. When paid promptly, and not abused, a credit card can actually help you get a loan in the future, or help you qualify for better interest rates, because you will have built up a solid credit history that a bank can trust. This works best especially for those with poor credit and are looking to improve it.
The key to your credit cards to work for you and your finances is to minimize how often you use them, pay them on time and in full if at all possible, and limit how many you have. For example, if you have one or two good credit cards, you really don’t need five more. Store credit cards should be viewed the same way. By limiting how many you have and keeping those balances as low as possible, you’ll be doing your credit score a big favor.
Anti Credit Card
Not everyone should have a credit card, even if they can get approved for one. If you have difficulty managing your funds, or if you view credit cards as “free money,” then you will only be harming yourself in the long run. Credit cards should not be opened if you are not capable of making more than the minimum balance payments at least six months out of the year.
For those that have difficulty controlling their spending, credit cards are one of the quickest ways to bad debt. Limits creep up, payments get harder to make and before long, you’ve fallen behind. This can lead to serious damage to your credit report and score, and it may take years to undo.
Not having enough respect for credit is the main reason that some people just should rely on cash for any purchases they need. An emergency fund can be set up in a savings account to handle any future problems, but in this situation, avoiding credit cards may be the best solution. The one exception would be a secured credit card, which is a great option for people in this situation. You can only spend so much, the company will report to credit bureaus and you’ll be a lot less likely to overspend when it’s your money in the account. This is the only time that a credit card is appropriate for someone that has problems with spending.
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