Saturday, 3 December 2011

Credit Cards are evil right?

The simple answer is NO!

Its not the cards that are evil. What's evil is Credit Card DEBT.

Most financial advisers and articles will tell you that if you are trying to live a financially clean life, you have to start using cash and do away with credit cards. That is true for people that are addicted to using cards to run up debt and spend beyond their means.

However for everyone else who can exercise a bit of self control or who already pays off their credit cards bills in full every month, Credit cards are quite useful.

Here is what I like about Credit Cards...

- They are so bloody convenient. I do not need to worry about carrying change. I do not need to worry if I have enough cash in my wallet if I see a great deal when I am out shopping. I do not need to worry about how to figure out how much I spend each month. Use a single card and other than stuff that you cannot use your card for ... everything is listed on you credit card statement.

- They save you money. A lot of cards offer you all kinds of perks. Rent a car and you can skip the Collision Damage Waiver fee. Buy your flight tickets on the card and you get free Travel Accident Insurance or in some cases even Free Trip cancellation / interruption insurance. Buy something on the right kind of card and you get up to an extra year of Warranty on the items. Some cards will also offer you a Loss or Damage insurance on your purchases. Others will give you Price Protection. All kinds of ways to save you money.

- They let you get something for nothing. All the cards that offer some kind of rewards allow you to get that reward (free travel, cash back, hotel stays etc) simply for buying the stuff that you would have bought anyway.

- They are safer than cash. If your cash gets stolen, you are out of luck. That money is gone and there is no getting it back. Lose your card instead and as long as you report it to the issuer in time, you lose nothing.

The key to using Credit cards is to ALWAYS ALWAYS pay off your monthly balance in full. No Exceptions. Another key is to ensure that it is a no-fee card or if there is a fee, that the reward you get is greater in value than the fee. And you should never chase after a reward by increasing your spending. The card only works if you use it to spend on stuff that you would have bought anyway. Not stuff that you are buying so that you can get a reward.

Also, always know what your balance is on the card at any given point of time. Don't wait to see your statement to figure out how much you spent last month. It'll be too late.

Be smart with your card and you will rarely trip up. Enjoy the benefits and let the companies pay for it :)

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