Editorial Policy

Are You A Credit Card User or Loser?

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By Eva Norlyk Smith, Ph.D.
June 13, 2012

With credit card issuers loosening up and making more credit available, many Americans seem to be returning to bad habits, causing credit card debt loads to rise faster than they have in years.

If you find yourself swiping your card more often, should you be concerned? It depends. As with other types of debt, credit cards can help you or hurt you. Managing your debt responsibly can help you free up money for other things — and even help you make more in the long run. On the other hand, carrying debt from month to month can make you a slave to plastic.

Are you a good credit card user or a credit card loser? Here are a few signs to help you do a reality check.

You might be a credit card loser if…
Credit card losers’ card habits cause them to lose money in the long run. Here are a few signs to watch out for:

You have credit card debt from purchases you didn’t plan to make: With credit cards, it’s easy to get tempted and make purchases you didn’t plan for. If your monthly statement contains many such unwelcome reminders, and you don’t have enough money to pay off those little indulgences, you’ve lost control of your debt.

You use credit cards to make ends meet: People struggling to make ends meet often turn to credit cards to fill in the gap between what they earn and what they need. If you find yourself having to use credit cards to purchase groceries or pay for your utilities, you’re only digging yourself deeper into the hole.

“If you’re charging your everyday living expenses, like food and gasoline, your budget is out of whack,” says Mike Sullivan, director of education for Take Charge America. “You are spending more than you are earning.”

While credit cards may help temporarily, in the long term, accumulating this kind of debt will cost you a great deal in interest charges. You’re better off solving your cash-flow problems early on by getting budgeting help from a nonprofit credit counseling organization.

You’re waiting for better days: Perhaps the worst kind of credit card debt is the kind you just can’t get yourself to face up to — the kind you let pile up while hoping that somehow, down the road, things will just get better.

“Most people ignore their debt until it’s such a serious problem that they have very few options left,” Sullivan says. “Instead of taking steps early, they wait until they are deep in debt and debt collectors are banging on the door.”

That’s when credit card debt will really cost you — more than just high interest charges. Once your credit score heads south, your financial freedom will be severely curtailed because lenders will no longer want to do business with you. Instead, Sullivan recommends, get help from a nonprofit credit counseling organization before the stakes get too high.

You might be a good credit card user if…
Credit card debt is not bad in and of itself. In fact, there are ways to put those 0 percent annual percentage rate (APR) offers to use to make money — or at least save money. To truly be a good credit user, you need to have good enough credit to get the best credit card terms, and the discipline to plan ahead. Here are a few ways to play your cards right:

Using credit cards for short-term loans: If you’re planning, for example, a home improvement project, using a low-interest credit card or a card with a 0% APR on purchases is a convenient way to get a short-term loan. Just be sure to have a plan in place to zero out the balance before the introductory 0% APR offer expires.

Using credit cards to finance large purchases: If used to finance large purchases that you’d make anyway, putting the purchase on your credit card can help you make the purchase earlier (and possibly get some great rewards, too, if you have a rewards card). Again, this only works if you pay the balance off in full before the due date or the end of the promotional period. Plus, charging the purchase on plastic provides you with breakage or loss protections you wouldn’t normally have if you used cash or a debit card.

Using credit cards to help fund your small business: Run an eBay store or another cottage business? One of the most tempting ways to use credit cards to make money is in funding small business activities. But when using business credit cards, watch out — business cards weren’t included in the Credit CARD Act of 2009 and therefore don’t have the same protections that personal cards do.

“Keep in mind that not all plastic is treated the same way,” warns Suzanne Martindale, staff attorney at Consumers Union. “Business credit cards don’t have the same consumer protections, so card issuers can still hike the interest rate on existing card balances, for example.”

Look at all your options to see if there are other, better ways to fund your business, Martindale advises. Because of the inherent uncertainties with lending terms, credit cards are best used by businesses as a way to fill short-term cash flow gaps, not as long-term funding.