Tuesday Tip: Credit Cards can Provide Rewards and Perks, but also Deep Debt
By Yehudit Garmaise
Before applying for credit cards, consumers should only ask themselves one question, said Chaim Geller, who created helpmebuildcredit.com.
“If you have ever paid interest because you found yourself with a credit card bill that you could not afford, then credit cards are not for you,” said Geller, whose business helps customers learn how they can maximize the rewards and benefits of credit cards.
“One credit card bill you cannot afford is ‘strike one,’ and you are out,” Geller said. “You only get one strike with credit cards. You should learn your lesson that it is not for you.”
While credit cards can be great tools for building good credit and earning cash rewards, points for flights, and several types of insurance related to travel, if the bills aren't being paid every month, credit cards lead most users to end up in deep debt.
“Carrying a balance on a credit card is the Number One mistake people make,” said Geller, who offered some of the following tips:
Minimize the number of cards you have: “The more credit cards you have, the harder it gets for a person to juggle them and keep track of all their expenditures,” Geller said.
Stay honest with yourself: While many people “grab things off shelves to buy,” when they have credit cards in their pockets, Geller said that credit card users must stay aware of how much they can afford and what is necessary to buy.
“Don’t spend money you don’t have,” said Courtney Vine, a professor organizer who helps clients with their financial health.
Maintain an Excel spreadsheet: “I record all of my expenditures very neatly on a spreadsheet,” said Geller, who never carries a balance. “I know exactly how much I am spending each month and on what.”
Print out your credit card bills every month: to examine your charges and consider what you can potentially cut out, advised Vine, who pointed out that unless we regularly go over our bills, we could be paying for unexplained increases or recurring charges that we don’t need or want.
Set up your “AutoPay:” on your credit cards by linking your bill to your checking account to automatically transfer funds to pay your monthly bill, should you become forgetful or in denial about what you have charged.
Also, make sure to check your bank statement: regularly to ensure that AutoPay goes through without any glitches, which, of course, can happen.
“Banks provide auto-pay as a service, but many things could go wrong,” advised Geller. “Whether or not your auto-pays went through, you are still responsible for paying your credit card bills on time.”
While Geller makes sure to check his bank statement at least once a month, Mordechai Y. checks his bank statement every day “to ensure that no unexpected charges reveal potential security problems.”
Charge a few recurring monthly charges and pay your bill on time to establish good credit: Even people who do not regularly carry credit cards can establish good credit by safely tucking away in a drawer a credit card to pay a few, small recurring charges, such as one’s monthly cell phone bill, or EZ pass expenses, Geller advised.
Banks profit off the rewards they offer: When considering the rewards of different credit cards, think about whether you would prefer 2% cash back or points for basic or luxury travel, but above all else remember: “A credit card is just an enticement to spend,” said Geller, whose website can be found at helpmebuildcredit.com. “That is how they are designed.
“As much as you think you are earning off the bank, the people who are carrying balances and paying high-interest rates are who are supplying the extra money.
“Many consumers and businesses desire the many benefits credit card offer, but all credit cards applicants must ensure that they do not become the debtors who end up paying for others’ cash back and travel perks.”
photo credit: Flickr