Our Archive of Articles About Financial Literacy and Other Topics
Winning At Cards
February 11, 2008, 3:28 pm
How to play the credit card game without losing.
First things first: There is absolutely no way to benefit from using a credit card if you run up a huge
credit card debt balance and don’t pay it off quickly.
At Springboard, we constantly urge our clients to give up their credit cards. And that’s mainly because credit card debt is the largest contributor to this country’s problem with high-interest consumer debt.
Thanks to some of the most sophisticated marketing and advertising techniques known to man, however, credit cards have become ingrained in our very culture, so it isn’t realistic to think we can get rid of them altogether. Although, that’s still the strategy we would recommend in most cases.
So for those of you who feel you’ll never be able to give them up, here are the do’s and don’ts you’ll need to use credit cards to your advantage.
First, credit cards cause so many problems because of their high, compound interest rates. So the most important strategy you can employ with credit cards is to keep the interest rate as low as possible.
Many cards charge 18 percent and more, especially department store and gasoline cards. If that’s the case with your cards, you need to do a little comparison shopping. There are many cards available for as low as 11 or 12 percent. Start reading the fine print on those credit card offers with the low introductory rates, and see how high they climb after your six months are up. If they only go up to 13 percent, and you’ve got a balance on another card at 18 percent, you can save a lot of money by transferring that balance to a new card.
We will warn you, though, to exercise extreme caution when playing with this particular fire. It does you no good to transfer a balance to a new card if the permanent rate is the same or even higher than your original one.
Another way to reduce your interest rate is to ask the credit card issuer to do it. Many of these cards understand that they lose business by sticking with their higher rates, and will gladly reduce it if it means keeping you as a cardholder.
Most important, if you transfer a balance from a high-interest card, be sure to contact the card issuer and close the account. We see a lot of clients who transferred a balance, then ran up a new one on the original high-interest card.
If you are disciplined enough to pay off your balance every month, credit cards can be a valuable tool. Certainly, it’s easier to rent a car or hotel room with a credit card than it is with cash.
Keeping accurate records of your expenses is also easier with a credit card because the monthly statement compiles your purchases into one neat package. This is important if you have business expenses for which you are reimbursed, or that you claim as tax deductions. Also, there are certain protections you get when you purchase with a credit card, like added warranties on certain products, that you don’t get when you use cash.
Overall, the key to winning the credit card game is to pay off your balance every month. When you pay hundreds of dollars in interest, it’s the credit card companies who claim victory over you.
About Springboard Nonprofit Consumer Credit Management
Springboard is a nonprofit credit education and financial counseling organization founded in 1974. The agency offers personal financial education and assistance with money, credit and debt management through confidential counseling. Springboard is accredited by the Council on Accreditation, signifying high standards for agency governance, fiscal integrity, counselor certification and service delivery policies. The agency provides pre-bankruptcy counseling and debtor education as mandated by the bankruptcy reform law. Springboard is a HUD approved housing counseling agency and a member of the National Foundation for Credit Counseling, a national organization of nonprofit credit counseling agencies. The agency has several locations in California and offers face-to-face and nationwide phone counseling services. For more information on Springboard, call 1-800 WISE PLAN (1-800-947-3752) ext. 7750 or visit their web site at www.credit.org.
