Dec 25, 2008

Credit Cards are another Tool in your Financial Toolbox

Firstly, welcome to all the Master Your Card readers wandering over here to take a look round. And to all my readers, go and take a look at Jonathan and Kristy's blog, it's a great read.

Today, as a lovely Christmas present I suspect, I've been featured as a guest blogger over there with a post entitled 10 Tips on Using your Credit Card Wisely so have a read of that article there before coming back here.

As a follow up post, I'd like to just take a few words to discuss a topic I alluded to in my guest post over there, a topic I fear is usually put into the "that's bad" basket without much further thought than that.

All Credit Card Usage is Evil (or is it)?

Pennies from heaven
Photo: bike

I asked in my guest post whether I was a bad person for using a credit card. In fact, what I really said was:

I’ll admit it. I’m a credit card user. I use it a lot, not everyday, but a lot. Am I wrong? Am I a bad person? Should I be slapped with a wet haddock for my sins?

There has been some discussion as to whether credit cards are evil or just dangerous and there are definitely people sitting on the fence too. But I'd like to make an argument that your credit card is actually a valid piece of equipment in your financial life and something which has quite specific and advantageous uses.

Another Tool in your Financial Toolbox

In reality, credit cards are just another tool in your financial toolbox. They can be used just as much or as little as you like and like any tool, must be used with care and precision. When was the last time you just blindly hit a hammer against a piece of wood to knock a nail in? That's right, you never did! Instead, you position the nail carefully with one hand and precisely strike it with a blow from the hammer in the other hand. It's all lined up, you know exactly what you're doing and you know the consequences of hitting the nail with the hammer.

And that's how a credit card should be used. You should know exactly how much you're spending, what you're spending it on, when that interest-free period stops and the date by which you need to pay your balance.

By using this particular tool in the right way and knowing exactly how it should be used, then you can actually maximise many of the advantages of using a credit card.

Using the Right Tool for the Job

Sometimes you need to do something for which you don't actually have the right tool. In woodwork, this is prevalent and in a lot of cases the job can be improvised by using other tools. In your financial toolbox, you also have other options if you don't have or won't have a credit card.

However I believe that there are certain benefits you can gain by using a credit card which you can't get from any other tool in your financial toolbox. For example, that interest free period on your spending is something you don't get elsewhere, nor do you find 1% cash-back offers from your debit purchases. (P.S. I don't use interest free periods when buying large items, instead I save up for them and pay it off in full right there and then.)

You really do have to weigh up the pros and cons of getting and using a credit card and like all decisions in your (financial) life, your own investigation into this area is extremely important.

And Finally ... It's Not For Everyone

Friends of mine point-blank refuse to own - let alone use - a credit card. That's okay with me since I think it is everyone's own personal choice. I also know of friends who have used credit cards before, gotten into debt and now never touch the damn things! Again, that's fine since obviously it wasn't for them.

From my own personal experience, I have had times in the dim and distant past when I carried a balance on my credit card for almost a year! Up to £4,000 in some cases. Pretty crazy stuff when I think about it now.

However, the advantages I gain by using a credit card nowadays far outweigh the risk that I would again carry a balance for so long (if at all). I have learned from my mistakes and now use the card to my advantage and in a sensible and very restricted and restrained way. I know exactly what is going on the card and I know exactly when it needs to be paid. It is completely and utterly 100% under my control.

So for me, I'd never do without my trusty credit card and in fact my life, and my personal finance life, is better for it too.

What's your take on the matter? Do you or do you not use a credit card?


amymaggini said...

Yeah, I agree a credit card is just another financial tool, that when used properly can be used to your advantage. For people who know that they can't use them responsibly, then, yes, don't have them and don't use them. I just finished paying off the last of my credit card debt and I do not wish to have any more, ever. My Discover Card has a cash back program that I participate in. I buy only things I can afford to buy that I would be buying anyway (groceries, gasoline, etc...) and then pay it off before it is due. I have already redeemed $20 in cash back in the form of a $30 gift certificate for the M & M Store in Las Vegas. This is doubly awesome because 1. We go to Las Vegas every year and I always buy goodies at the M & M Store, and 2. The certificate is worth $30 which is $10 more than I would get if I wanted the cash back. It works out really well for me!

Anonymous said...

I am proud to say that I use my credit cards exactly as you have described!

When I was a child, I read a coffee table book called "Life's Little Instruction Book" and it said there, "use credit cards for convenience, not for credit".

I have lived by that. I use my credit cards to get the reward points, and pay everything off as it is due. For big purchases, I use my credit cards still for points, but I already have saved for it!

Thanks for dropping by my blog

-- Bianca

PS: Since we sort of have the same goal, I would like to add you to my blogroll. I hope you don't mind. :P

Rhea said...

I use my credit card for most of my purchases (food, etc.) and pay it off each month. The statement provides a great record of my spending, especially the year-end statement, where you can categorize your spending and see where you are going overboard (in my case, restaurants).