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Credit cards are an important part of modern life, but for most of us, our relationship with plastic is, well, complicated. We love credit cards for the great convenience and easy access to credit they offer; we hate them, when the bill comes due each month and we, yet again, charged more than we meant to.
Of course, credit cards aren’t inherently good or bad—it all depends on how they are used. Which type of credit card user are you? Here is an overview of the most common types of credit card users—and tips for avoiding the most common mistakes each type is prone to.
The Clark Kent-onite. If Clark Kent had a credit card (and who’s to say he doesn’t), how would he use it? Well, Clark Kent is not only Superman, he is also supersensible and super careful. So naturally, he pays his credit card bills on time every month and, most significantly, religiously pays off the card balance in full. And while his credit card habits may seem frightfully dull, they are blissfully free of the stress and anxiety that mounting credit card debt can lead to. After all, Clark has plenty of excitement and suspense in his life as it is.
Tip: Clark Kent is on to something. Only charging what you can pay off in full each month is the key to having your credit card cake and eating it too.
The Rewards card-aholic. The rewards card-aholic is the user who is hard at work planning a trip to Europe before the end of the year, so he will reach Gold Medallion status on his Delta Skymiles American Express card and get increased bonus points and double miles rewards earnings. (Does your spouse fit the bill? Mine does.) Never mind that he is spending close to $1,000 for rewards earnings of less than $100; he will assure you that with the increased rewards bonus and earnings, the trip will pay for itself many times over during the year to come.
Tip: Rewards cards by far are among the most popular credit cards these days, and for good reason. But yes, the prospect of ‘free’ rewards does tempt some cardholders to spend more. Overly zealous rewards card users might want to do the math before swiping too liberally.
The Impulse Spender. The Impulse Spender uses credit cards without much thought to whether or not he or she can afford the purchase. People in this category tend to spend more than they earn, and easily start down the slippery slope of slowly accumulating credit card debt. Every month the card balance gets just a little higher, and it doesn’t seem like a lot, until one day, they suddenly wake up, and it is.
Tip: If your credit card bill is higher than you can pay off each month, perhaps it’s time to keep more closely track of charges. Make a budget to determine how much you can afford to charge (and pay off) each month; then subtract every charge from that amount, so you always know how much is left to spend.
The Deal Stealer. The Deal Stealer has never seen a 0 APR balance transfer offer he or she doesn’t like. After all, it’s practically free money. Yes, it’s free money (apart, of course, from that pesky little 3-5 percent balance transfer fee), until the pied piper has to get paid. Once the intro offer expires, paying interest upwards of 19.99 percent on the remaining balance may not seem like such a steal after all.
Tip: Balance transfers are great, if you have a plan in place to pay off the balance in full before the introductory offer expires. (And no, don’t plan to simply transfer the balance to a new 0 APR offer.)
The Credit Card Novice. The Credit Card Novice will tend to make all the wrong moves simply because he or she doesn’t know any better. Students and other people lacking in financial literacy tend to fall into this category, they are either too young and/or inexperienced to realize that there is much more to using credit cards than swiping plastic and paying the minimum on the credit card bill each month.
Tip: These days there is no shortage of financial education resources on the web. Investing a couple of hours in reading up on credit card basics will save you money and financial headaches down the road.
The Financial Coper. Credit cards for millions of people sadly have become a way to make ends meet, particularly with today’s high unemployment rates. Whether it’s temporary a shortage of income or an unexpected emergency that causes people in this category to turn to credit cards for help, the result unfortunately often is the same: a good short-term solution becomes a long-term problem. While credit cards may solve the immediate financial problem, high interest rates and mounting monthly payments over time may push people in this category over the brink into credit card default.
Tip: If you’re having trouble making ends meet, create a budget and look for ways to aggressively trim expenses, rather than using credit cards as a solution. If you’re already struggling with unmanageable credit card debt, explore ways to pare down the debt; even consider seeking debt counseling or negotiating a hardship payment plan with your card issuer. It’s better to bite the bullet early and not later, when your credit is ruined.
