Credit Cards - Friend or Foe?

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As soon as we began our sharp economic downfall last year (well, probably before that, but anyway), people were definitely looking for something or someone to blame. The real estate bust, sub-prime home loans, greedy people on Wall Street, power-hungry CEOs...you get the idea. There was a lot of blame to go around, and for sure, these things listed and other things not mentioned all came together at the same time to put us into a financial tailspin.

One scapegoat also happened to be the credit card companies. I kept hearing over and over from friends, family, coworkers, even from my 6th grade students, "Credit cards are evil!" and "I'll never get a credit card!". True, credit cards have the potential to RUIN you. There's a lot of fine print, and you have to understand the terms clearly. Do you have a different rate the first year you have the card? What are your late fees and other penalties and when are you charged? Do you have a grace period that's different if you pay the minimum balance or if you pay in full? Does it matter what time of day you pay your bill? If you pay late, that's at least a $30 fee, not to mention if you have a balance, and you're charged interest. The credit card companies are businesses, and they make a lot of money by NOT clearly stating terms. Sure, they send you that little packet when you first get your card - does anyone read it? It's like they purposely designed the system to trick you...

But credit cards are a great tool to build financial security. They can positively impact your credit score if you pay on time and don't carry large balances. Your credit score is vital to getting better rates on loans of any kind, which can save you a ton of money over the years. Not having a credit card can negatively impact your credit score much like having too much debt - why? Because lenders won't have much to go on to tell if you're a responsible borrower. Plus, many credit cards offer rewards like cash back, points, airline miles, and free nights in hotels. Whatever your interest, there's probably a credit card out there that could save you money on the things you buy most.

My husband and I have a strategy with credit cards to make the most of the rewards. First, we put all of our monthly expenses on them - grocery stores, bills, etc. Then, we immediately pay it off. If we are planning on making a large purchase, we save up the cash in our savings account first, purchase with the credit card, and then pay it off. The bottom line - if you can't afford it then, you probably shouldn't buy it. It's not rocket science, but there's a lot of people that don't think about using their credit card and then get into trouble with it later.

It's not the credit card companies who put us in debt - WE put ourselves there. I am glad to see changes coming to credit cards with the new legislation passed in May, because this is definitely an area that needs more transparency and fairness. But let's start taking some personal responsibility. Stop buying things you don't need. Don't get the biggest TV or the most expensive car. Don't give the credit card companies any of your hard-earned money - give it to your bank instead!

To find out more about the Credit Cardholders' Bill of Rights, go here.

What are your feelings about credit cards?