Don’t get caught in credit-card trap
Dollars and Sense
Credit cards are a double-edged sword: There are both pros and cons to having them, and the arguments are strong on either side.
If you want to make a major purchase such as a car or a home, you need a credit history, and that’s where showing a history of on-time credit-card payments can be most helpful.
Plus, there are times when it’s just plain handy to have a credit card:
•In a flat-tire emergency by the side of the road if the tow truck won’t take a check.
•Taking advantage of sales on large items you need. The trick is to make sure the credit-card payment plus interest doesn’t exceed what you would have paid for the item if you’d saved up and bought it when it wasn’t on sale. The true cost of any purchases made with a credit card is the item amount plus the credit-card interest and finance charges.
•Store returns are easier when you’ve put the purchase on a credit card — no waiting two weeks for the store to send you a check.
•It’s nearly impossible to make car rental or motel arrangements in advance without a credit card.
Credit cards are easy to use — and therein lies the biggest problem. The ease of pulling a credit card out of your wallet to make a purchase can lead to decisions you wouldn’t make if you had to produce the cash. Even worse is if you use the convenience of credit cards to pay for everyday expenses.
Credit card debt has to be paid back with on-time monthly payments. If you don’t pay at least the minimum amount, your credit score suffers (which is worse than having no payment history at all) and the balance you owe goes up as late fees are added to the balance.
Credit cards or your account information can be stolen, especially if you make online purchases. While you’re limited in your liability for purchases made on a stolen card, your card information can be just one step in having your identity stolen.
If you don’t have a credit card or if you’re considering taking on an additional card, weigh the pros and cons before you apply — and read the fine print on the application.