Take a look at the other posts in this series if you haven’t already.
There’s a lot of conflicting information out there on credit cards. Some say it’s no big deal to use a few credit cards, but others say you should never use them. Then there are still others who say that if you use credit cards, you better be very responsible about it.
Since we sort of touched on them in my last post about getting your spending under control, I felt it was appropriate to elaborate a little more on this area of finances.
First, lets look at the 3 schools of thought on this subject:
It’s No Big Deal To Use A Few Credit Cards.
On the contrary, using credit cards is a very big deal and you must be absolutely sure that you are responsible and disciplined enough to have even one, let alone several cards.
The people who think of credit cards as being no big deal usually use them without thinking, and that is why they end up in terrible debt. They don’t budget, they only pay their minimum payments,and then they end up in a financial crisis of some kind. This is what you want to avoid at all costs.
You Should NEVER Use Credit Cards.
The other extreme is that you should always pay with cash and never use credit cards. One of my favorite financial gurus, Dave Ramsey, belongs to this school of thought. His thinking is that “there is no responsible use of credit cards”. This is where I disagree with him.
It is not a bad mentality. It is much better than the first school of thought since it is more disciplined and more likely to keep you out of debt. For many years we used the cash envelope system and it worked wonders to keep us on budget all the time.
Nevertheless, I and many others believe that there is responsible use of credit cards that can greatly benefit you. There comes a time for someone, who becomes so disciplined with their money that they are faced with 2 choices: continue to play it safe, or make your money work for you.
Which brings me to the final school of thought:
Be Very Responsible When Using Credit Cards.
When you are in the habit of keeping track of every single penny, budgeting properly, and better at saying no to all the things you don’t need, then myself, and others included, say that the use of credit cards is a very thrifty choice.
The trick is to pay your credit card bill off in full at the end of every month before interest hits, and never ever make a late payment. Then you get all the benefits of the credit card (such as points and rebates) without all the drawbacks.
I’m warning you, though: it’s a lot of work! Here are some things you must be in the habit of doing before you decide to take the plunge:
- Have a very strict budget that you have been able to stick to for at least 6 months to a year.
- Record every single penny.
- Only use them for the things that you need and are in your budget. NEVER use them frivolously or on anything you know you wouldn’t be able to pay for if you paid cash.
What Should You Do?
This all depends on you. Is your spending out of control? Are you in over your head in debt? Then don’t use credit cards. Stick to the cash envelope system until you are sure you’re disciplined enough to make the switch to credit cards. You’ll know when you’re ready.
Do you have an excellent budget you can stick to no matter what? Do you keep track of every penny? Then you should be fine to use a credit card. Choose one with an excellent rewards system so that you’re not only keeping your credit score high, but also getting some cool free stuff. We use the amazon.com visa rewards card and love it (not an affiliate link)!
We were on the cash envelope system for a long time since we were not disciplined enough for credit cards. But eventually we became so disciplined with our money that we ditched it and switched to the amazon.com credit card. We have not regretted it since.
Which school of thought do you agree with or disagree with? Tell us why bellow!