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Wednesday, March 25, 2015

Are credit cards a boon or a bane?

By Gordon Wolfe

Life has a way of throwing surprises at us and there are going to be times when we need some emergency funds to get us through a sudden expense, like fixing the roof or replacing a water heater.

These are the situations that credit was created for and it has served these purposes well for years. Unfortunately, credit is becoming so ubiquitous that many people are losing touch with their finances and spending beyond their means. This has led many to decide that credit cards are not worth the risk, but are credit cards really to blame?

The benefits of credit

When emergencies occur, credit cards and line of credits are almost essential in helping many people stay on their feet and recover from unexpected expenses. Rather than taking out a loan or borrowing from friends or family, they allow people to maintain financial independence during hard times.

For those who are able to manage their finances well, credit cards present the opportunity to shop online, earn various reward points, and enjoy a comfortable lifestyle between paychecks. They also allow us to avoid carrying cash and provide more financial security by virtue of being electronically monitored. However, many people have a hard time maintaining proper controls on their credit spending.

The risks of credit

Since credit cards are so common these days, they have had a large impact on how we regard and spend our money. Extremely convenient and easy to get, they dilute personal responsibility for financial decisions and allow for irrational purchases that may not otherwise occur. Many people end up shopping more than they strictly need to, purchasing frivolous items with money they do not have, and accruing large amounts of debt that may follow them for years.

Anyone with a decent, steady job can qualify for a credit card, or two or three, and this is where the problem truly arises. Because most people have far more credit than they do income, it is extremely easy to overspend and get trapped with more debt than you know what to do with. This has contributed greatly to the rise in bankruptcy as people get used to spending beyond their means. Debts caused by credit cards can also affect your chances of getting home mortgages or good mortgage rates.

Tips for healthy credit card use

1. Close all credit cards with high rates of interest
2. Never keep more than 1 or 2 credit cards at a time and be sure to shop around for the best rates or rewards programs for your family.

3. Don’t use credit cards if you do not have the cash to pay it off right away or by the end of that month. Carrying a balance through several months is a waste of money as you will end up paying significantly more interest.

Credit cards are not inherently good or evil, but they can be quite a temptation for many people who have a hard time resisting the allure of extra spending money. While credit cards are likely here to stay, it is important to have a healthy attitude towards them in order to avoid serious financial trouble down the road.

About the author: I am working as a consultant for finance and education in one of the firms in Canada. I am largely dedicated in giving expert analysis and advisory in education, finance, bankruptcy and credits to individuals, students, entrepreneurs as well as firms and organizations. I do more research on various courses, accredited colleges and educational institutions so that I get in depth knowledge about latest trends in education. Follow me in twitter.

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