Use Credit Cards to Your Advantage

Use Credit Cards to Your Advantage

Ah yes, credit cards, our modern-day instant bank machine. Or is it? With the reports of credit card debt being at an all-time high in Canada and the U.S., it seems to many of us that maybe we shouldn’t have credit cards for personal use. Today we are flooded with mail or e-mail asking us to fill out a form for a new credit card. They will even ask you in person! I remember going to Universal Studios in California, this going back to 1998, someone would pull you aside to their sign-up table; and they were giving away a free t-shirt just for applying for one!

So why use a credit card? Here are some advantages and disadvantages to having one:

Advantages:

You earn interest, not the credit card company – when you make your purchases using your credit card, so long as you have a thorough budget and intend to pay off the credit card when payment comes due, you actually earn interest instead of the credit card company. As money sits in your bank account, you will be earning the interest. Even better, you can have up to 45 days from the purchase date to pay the credit card off. You win; they lose. Of course, the merchants will end up paying instead in the form of merchant fees.

Perks Perks Perks! – today’s credit card companies are vying for your loyalty. Free trips, cash back, hotels, flights, and even a down payment on a car can be attached to your credit card. Find a credit card that has a program you like and start receiving “free” stuff! Watch out for annual fees though, as many have them.

Insurance on stolen goods – one of the beauties of credit cards is that your purchase can be insured against theft, quite often for up to one year after the purchase. You cannot do this with debit cards.

Fraud protection – I have, on occasion, received a phone call from my credit card company in regards to “unusual purchases” made. I love this and thank the person calling me as a follow-up. More importantly, if there has been a fraudulent purchase on your credit card, the credit card company covers the loss, not you. It is a little inconvenient, however, that you have to cancel your credit card and wait for a new one to be issued to you by mail. Try protecting yourself like this with cash or a debit card.

Payment protection in the case of a disability, injury or disease – credit card companies offer payment protection – just in case a personal tragedy happens. They will cover your minimum payment until you are fit to make payments on your own. This will help protect your credit rating and give you piece of mind. If you have used this, you know what I am talking about. This is only available if you sign up for it.

Disadvantages:

Identity theft – with today’s high level of technology, identity theft is on the rise, even though the credit card companies and governments are trying to do everything in their power to prevent it. If you become a victim of identity theft, the results could be disastrous, and in extreme cases put you into bankruptcy.

High APR on many cards with outstanding balances – credit card companies offer different APR (annual percentage rate). However, so many cards sit at 19% or higher. This makes it tough to pay down a credit card balance.

Debt goes deeper – annual fees and monthly interest – if you do not have effective spending controls in place, or have a budget, your consumer debt stands the threat of growing. Soon you will run out of room for those “emergencies”, and paying your bills will be increasingly difficult. Your stress level stands to rise with the debt level.

Too many cards – having too many credit cards can actually hurt your credit rating. Most people do not need more than two cards.

Seianna Financial Services supports Budget Coach, teaching you to “Live Inside Your Means”. Go to www.liveinsideyourmeans.com for more information.

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