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Monday, January 7, 2008

Credit Cards - Yay or Nay?

A lot of people have the attitude that credit cards are bad. I have used credit cards since I started college, and I have the opposite opinion. Provided you are with the right company, and provided that you use the credit card responsibly, credit cards are a great thing.

I currently have credit cards from two major companies, as well as a few store cards here and there. I really only use one card; the other gets used in emergencies or if a great rewards promotion is going on. I have never carried a credit card balance. Therefore, I have never paid any interest on my credit cards. And that probably informs my opinion about my credit card.

My main card is a rewards card. I try to put all of my expenses on that card. I have found that if I carry cash, I will spend it without a thought. If I have to pull out my credit card, however, and see that expense tracked in Microsoft Money, I am much less likely to make the purchase. I know some people are exactly the opposite. This is what works for me. The other benefit to putting everything on that one card is that I can clearly see what I am spending in a month's time. I can see when my spending is getting a bit higher than I would like. Plus it helps the rewards add up.

I freely admit that I signed up for my store cards for the initial discount and the coupons. Was it worth it? Probably. Again, I pay these cards off every cycle. And in at least one instance, by opening the card, I got a significant discount on a purchase. I also get some pretty good coupons in the mail. This month is my birthday month, and I got a number of coupons from stores at which I have a credit card. Will I use them all? No. Will I check out the stores to see if the discount is worth it? Probably.

For me, it is very important to track my expenses each month. I have been using Microsoft Money for years to track my income and expenses. I have it set to download my credit card statements, and review the charges at least once a week, usually two or three times a week. I know what recurring charges are applied to my credit card every month, and I know when they will be applied. Without looking, I can tell you the date my credit card statement will be issued and the date on which the payment will be due.

One thing I love about my credit card is that it allows my money to work for me. Essentially, the credit card company is giving me an interest free loan for the month, letting me buy whatever I want on their dollar. My money gets to stay in my bank account and earn interest. Of course, if I don't pay the credit card company back for this loan on time, they will start charging me interest.

I know a lot of people who find cards with 0% APR for a number of months and then charge everything to those cards, putting the money to pay off the cards in a high yield savings account, and then paying off the entire balance before the interest rate increases. While they can make a significant amount of interest doing this, the thought just makes me panic a little inside. I have tried convincing myself that I don't need to pay my credit card the day that the statement is issued. I can wait a week. I can wait until the day before the balance is due if I want. But doing so makes me worry that something will happen and the payment won't be applied and I will end up with all sorts of fees. I have found a middle ground. I typically make the payment 7-10 days before it is due. That way, I've gained some interest due to that grace period, but there is no chance the payment won't be applied in time.

A few years ago, I got a phone call from the credit card company indicating that they believed my number had been stolen and fraudulent charges were being made. They were absolutely correct. But the company had caught this fraud so quickly that none of the charges ever applied to my account. Yes, the account was frozen, and then closed. But the credit card company sent me a new card (and offered to overnight it to me if I needed it), and I have had no problems since. I consider that great customer service. I can't imagine the hoops I would have had to jump through if something similar had happened with a debit card.

So all in all, I am definitely pro credit cards. But I do see the other side of the coin. They're not for everyone, and they do have their pros and cons.

Where do you stand on the issue?

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