Credit cards have always gotten a bad rap, but this has always been for good reason. Credit card debt is a huge problem in this country, with the average adult American carrying nearly $7000 in debt. With interest rates sitting around 20 percent, this is a huge expenditure. Interest payments alone on debt levels this high are over 100 dollars a month.
As you can clearly see, there is a real downside to credit card usage which might make it seem odd to talk about benefits. There is an upside to everything however and if you are responsible, you can realize the benefits of credit card use.
Get Out of Debt
Before you can use credit cards to your advantage, you need to get your accounts under control. The best way to get out of it is with a debt consolidation loan. Simply put, this is a large loan that you take out and use to pay off your credit card balances. Having all your debt in one account makes it easier to manage and ideally, your interest rate will be much lower than what you are currently paying.
The best rates for consolidation loans are generally reserved for those with good credit, but even if you have credit problems, you may be able to qualify for a loan that makes financial sense. The easiest way to do that is with a resource like this that will allow you to get a loan offer from a lender that specializes in less-than-ideal credit. Yes, they are out there and some of them can even get you nice loan terms.
Once you have your debt problem resolved or if you are already good with your debt management, you can move on to using credit cards to your advantage.
Credit Cards for Good
Credit cards are not all bad and in fact, they can do a lot of good. Before you put them on the banned list, here are some reasons to pay with plastic.
Build Your Credit
Like it or not, credit cards usage is a big part of your credit score. In fact, revolving credit utilization takes up a full thirty percent of your ranking.
The key to making the most of this credit building tool is to keep your balance under 10 percent. People generally think 30 percent is the number but keeping your debt under 10 percent will actually produce the highest credit score.
Another boost to your credit score with plastic comes from the average age of credit. In an all likelihood, a credit card account will be your oldest account. If you close it, it could drastically reduce your average age of credit, so try to keep your older accounts open and in good standing. To do that, use them sporadically and pay off the balance.
Get Money Back
Cash back offers represent another significant advantage to consumers. Who wouldn’t want to get up to 5 percent back on a purchase? This is especially true if you can get money back on regular bills like utility payments and insurance.
The catch here is that you might be tempted to carry a balance. In fact, this is the entire reason credit card companies offer these perks, to trap you into a debt cycle.
Take advantage of the cash back offers but refuse to fall for the traps. Pay off your card completely every time you receive your credit card statement.
Fraud Protection
The protection provided by credit cards can be priceless in the right situation. Sure, your debit card will protect you, but fraud on a debit card could cause your checking account to be locked down for days or even weeks. You will get the money back eventually, but it will cause a huge disruption in the short term.
If you shop online often or put your account numbers at risk, you should be using credit. Some examples of risky places to use your accounts include the gas pump, restaurants, internet shopping and anyplace where you must physically hand over your card. For those of you who make these kinds of transactions, you are better off using plastic.
Advanced Reporting
Do you use cash for your daily expenses? If so, you probably really have no idea where your money is going. Simply hitting the ATM for cash every time you need spending money is no way to be financially responsible.
Instead of using cash, switch to a credit card for your daily expenses and get a statement at the end of the month that you can use for reporting. Learn exactly where your money is going so that you can learn to identify and change bad behaviors. Once you see a report, you might be surprised at just where your money is going.
Let’s Wrap Up
It is clear that there is a convincing case to be made for the responsible use of credit cards and revolving debt. In fact, there are many more positives than we have listed in this article, depending on your situation. Whatever the good is however, you need to look at the negative a well. You can get into real trouble with credit cards, so be disciplined and think out all your financial moves before you make them.
