Editorial Policy

Cards aren't evil, just not right for some

Erica Sandberg

October 10, 2014

QHi Erica,

My mom says that credit cards are evil. She had to file for bankruptcy twice because of them. Now, she has no credit cards and says that is the best way to live. What do you think? —Memphis

ADear Memphis,

I think your mom finally made the right decision. It appears that credit cards are not right for her, and if she can live better without them, fantastic.

However, financial institutions that issue these cards don't exist to hurt people. Charities they're not, but they certainly conduct a valuable service. Millions of Americans use credit cards to their advantage. True, a fair portion also get into trouble with their cards, but the responsibility for that falls squarely on cardholders' shoulders.Ask Erica

I must reword the sentence: “She had to file for bankruptcy twice because of [the credit cards].” Instead, I would say: “She filed for bankruptcy because she was unable to pay what she borrowed.” If your mother used a credit card to make purchases, she did so borrowing money that the bank lent her. It's no surprise that they wanted the money back. She broke her promise to repay the loans, then, suffered the negative effects. The cards or creditors didn't make her go bankrupt. That was her own doing.

This is not to say that managing credit cards is always easy. Perhaps you can't cover essentials or there is something tempting that you want. In such times, a credit line can be more tempting than a box of delicious doughnuts. At your fingertips is the ability to charge thousands of dollars, even though you don't have a plan to pay it back.

That's when you put the card away and find another method to get what you want or need.

Credit cards are not meant to get you through the hard times, or to buy things that are out of your financial reach. Rather, they are payment tools designed to help you buy things you can afford.

After charging, it is best to pay for everything you bought by the due date. Finance charges won't be added to the bill, so it becomes a simple, safe and free transaction. In fact, countless people who have credit cards with rewards programs actually profit from this arrangement.

Still, another advantage of credit cards is that you can pay for something expensive over time. Six months or less is ideal.

Let's say you want an $800 tablet, but would like to spread the cost over four months. Even with an interest rate of 20 percent, the extra fees wouldn't be too much — around $34. Oh, and as you're deleting that balance, your credit reports with the three major credit bureaus will show large and steady payments, causing your credit rating to rise, which lenders track to assess your creditworthiness. Interest rates on any future loans and lines of credit will be lower, and you'll look great to others reading the report, such as landlords and employers.

Everyone should know their limits, though. I'm not talking about the amount you can charge, but how well or poorly you can handle a line of credit. These pieces of plastic are not good for people who borrow to excess. The price for doing so is too high. If you're not careful, you can slide into the hole. Payments will be tough or impossible, and the debt will escalate because of accumulated fees. If it gets really bad, collection calls will start, your anxiety level will rise and eventually you'll have to make some highly unattractive decisions.

No, credit cards are not evil. They are neutral pieces of plastic that you can use beautifully or abominably.  The choice is yours.

Got a question for Erica? Send her an email.