CREDIT CARDS / REVOLVING CREDIT

Credit cards can be a catch 22. We need (and want) them for convenience, to help purchase bigger-ticket items and to establish a credit history in our name.  But it's so easy to get in trouble with late or missed payments or debt that accumulates to unmanageable amounts, seemingly in the blink of an eye. It's best to be well informed of the ins and outs of owning credit cards.

PROS AND CONS OF CREDIT CARDS
One of the positive aspects is the ability to establish credit in your name - preferably good credit.  This allows you to obtain everything from other credit cards to approval on a mortgage loan for your own home. In fact, you must have a credit history to be considered for any type of loan, mortgage or otherwise. And it's a comfort to know if you need extra money for unexpected expenses, such as a blown carburetor or your child's braces, the credit card can help you out.

However, there are negative aspects to credit card ownership as well.  The most common may be quickly accumulated debt, the balance of which cannot be paid off in one payment. So the debt extends, and the amount you pay on interest increases.

Another con is how easy it is to obtain a card. Once you open an account, it seems that every card company is trying to convince you that you can't possibly live without their card. Even teenagers are bombarded with letter after letter, offering large sums of money with one activation phone call. Perhaps an overwhelming temptation for an 18-year-old with a dirt bike in his sights but no means to make his monthly payments. 


DANGERS OF CREDIT CARDS
It’s important to discuss the dangers of having credit cards, such as not being able to pay the balance in full every month, leading to debt. Inevitably that debt grows until you realize it will take months of focused saving and payments to eliminate it.

Missed or late payments could affect your credit record, making it difficult to obtain a loan for a car, home, or other major expenditure, or being denied altogether.

Another danger is the toll that continual debt takes on your physical and mental health. Married couples disagree most often over money, and many arguments originate with this topic. Married or not, having more debt than income to cover it is enough to bring on stress, sleepless nights, and other related conditions (such as heart attacks, headaches, and unpredictable emotions). It may seem a bit dramatic to associate heart attacks with credit problems, but many studies link debt to physical and emotional health. Whenever people feel out of control, stress of some sort inevitably follows. There are ways to take back some of that control. 


READ THE FINE PRINT
In the dozens of credit card offers you probably receive, the super-duper terms are offered in bold print so you can't miss what a “bargain” they are extending. But there is always fine print, where you will find valuable information about the card's terms, including interest rates, grace periods, and fees.  And, the fact that after the first 3 months, your 3.6% interest rate suddenly skyrockets to 18.9%. In short: Buyer Beware. 


HOW TO SHOP FOR CREDIT CARDS
Be fully aware of where the card stands on the following items:

1. Teaser Rates: that too-good-to-be-true 3.6% interest rate probably is.  Find out if and when that rate increases, and if the higher rate is one you can comfortably pay.
2. Grace Periods: Find out how long you have to make a payment so you don't incur late fees. Most cards have a 25-day grace period before the interest kicks in.  If your card doesn't, prepare for those unpleasant finance charges on your next statement.
3. Annual Fee:  Try to get a card with a low interest rate and no annual fee. The exception is when you carry a high balance, in which case paying an annual fee gets you a lower interest rate.
4. Interest Calculation: Know how your card calculates your interest: either the average daily balance method (preferable); or the two-cycle average daily balance, which penalizes you if you sometimes pay your bill in full and sometimes carry a balance (not preferable).
5. Late Fees and Penalties: Fees for late payments or exceeding your credit limit can range from $15 to $25. Find out how much your card charges and when it charges it. Find a card whose payment deadlines are compatible with your paycheck schedule.

Another key point is to not apply for too many cards at once.  This may trigger a computer-driven evaluation that can label you an undisciplined borrower and negatively affect your credit-worthiness. As with any major purchase (which a credit card should be considered), shop around and find the best rates and terms for you and your financial situation. 


CREDIT CARD STRATEGIES
If you're already in the credit game fairly deep and need to rethink how you're managing all your accounts, the following options can help:

Consolidate & Cut-up: It's probably the most common method of getting your various accounts into a manageable situation, and it usually works. Ridding yourself of higher-interest rate cards and limiting your payments to one reasonable rate is a more effective method of actually paying down your debt. There are many companies that can help you do just that.
Stanch the flow: Put another way: stop the “bleeding” by controlling your spending. Be sure money going out is less than the money coming in. It's basic in principle but much more difficult in execution. Before any purchase, ask yourself:

• Do I really need this item?
• Is the price reasonable? And how do I know?
• Can I wait to purchase it?