frugal zeitgeist

The Responsible Use of Credit Cards

Posted on 16. Jan, 2010 by Forest in Saving Money & Finances

This is a guest post by Mark Brown.

Credit cards often get a bad rap, but they shouldn’t always be looked upon so harshly. It isn’t their fault that their owners use them unwisely, don’t understand the terms to which they are agreeing, or don’t pay them off each month. That isn’t to say that the companies that offer these cards aren’t often greedy, unethical, dream weavers, who dangle carrots in front of unwitting consumers and don’t expect them to bite.

I guess what I’m trying to say in a roundabout way is that, properly used, credit cards can be useful, even beneficial personal financial tools. But the users of credit cards, just as with many other tools, should handle them with care, otherwise they risk the chance of severe financial injury.

So when exactly is it advantageous to use credit cards? Well, in short, it can be to your advantage to use them pretty much whenever you like as long as you pay them off each month. The next time you’re standing in line at the grocery store and someone decides to write a check, ask yourself when it’s useful to have a credit card. After you’ve waited for the cashier to laboriously write the customer’s drivers license number on the check, run it through the check scanning system, and then wait for the customer to hem and haw as to whether they want any cash back, I think you’ll have your answer.

But you might be wondering why else it is beneficial to use credit cards other than just as a time saver. There are several answers to that question. Let me answer first by asking, “Why not?” Using a credit card is much the same as someone offering you an interest free loan for thirty days, to be used as you like, as long as you return the cash when they send you a bill. That means you can take that money and put it toward a short-term investment, earning interest on what cash they have so kindly lent you.

The second answer as to why credit cards can be beneficial is linked to the first. While you are temporarily using someone else’s cash to make your purchases, you may also be racking up rewards offered by the credit card company. This may mean that not only are you receiving an interest free loan, but investing the cash you might otherwise have had to spend on groceries or bills, plus earning airline miles, cash back or other rewards while strengthening your credit score by spending the money they’ve lent you.

You may also want to consider the advantages of where you can use your credit cards and how. It’s tough to deny that whether you love credit cards or hate them, they can be great tools for getting you out of a jamb. Whether you’re stranded while traveling, don’t want to deal with converting cash to the domestic currency overseas, or you’re just going somewhere that you would prefer not to carry cash, credit cards can give you that little added sense of security.

Rather than carrying a boatload of cash with you that can be lost or stolen while on vacation, out for a night on the town, or visiting the casino, you can slip a credit card into your wallet and breathe a sigh of relief. Then, should an unforeseen incident befall you, such as leaving your purse behind or having your wallet lifted, rather than being out hundreds of dollars, you can put a call into your credit card company, explain to them what happened, and let them resolve the situation with you.

Just remember that no matter where, when, why or how you plan to use your credit card, it is important to understand the terms and conditions related to that card as well as recognize the implications and costs of carrying a monthly balance.

Mark Brown is based in Australia and writes for a website where you can compare the best credit cards such as a range of frequent flyers credit cards that help you earn airmiles when you fly.

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Tags: basics of credit cards, credit card balances, credit card debt, credit cards responsible use, credit cards rewards