Don't Abuse Your Credit to Get "Free Money"

An interesting article on ArtWoo where the author makes some valid arguments that credit cards should be used only in times of emergency and living within our means is the prudent thing to do:

Credit cards make sense to use if you know and understand how to use them correctly. Americans abuse credit cards, mistaking them for "free money" and opening many different cards at the same time to satisfy their thirst for expensive things and, ironically, things they can't afford.

If you use your credit wisely, you can actually save money by purchasing on credit. This requires paying off your credit every month to avoid interest and fees. In this sense, the 30 day loan is "free money" since your money is increasing with interest while sitting in your savings account.

Also, if the credit card that you use is a "cash back" card, you're also discounting the purchase price from 1 to 5%.

Saving money to get "free money" is ultimately the plan you need to work at:

1. Pay everything in cash for two months.
2. Keep track of everything you purchase.
3. Use Quicken or MS Money to help you track and budget your expenses.
4. Accumulate enough savings for your monthly budget then start rotating monthly expenses on your card to get the cash back and interest free loans.

Remember the important thing is to save and budget. Use your credit cards wisely by paying off the balance each month.

Are You Addicted to Credit Cards?

Jennifer Levitz wrote an interesting article in The Wall Street Journal about credit card addiction. She presented a view where consumers were overextending their credit cards to meet compulsive spending habits.

I would argue that the true addiction is not the credit cards but is actually an addiction to shopping.

While it’s not difficult to understand her point of view, overspending, not budgeting and simply paying interest is ultimately the culprit of overextension.

Of course there are shopaholics that continuously go shopping where it wouldn’t matter if they had an endless stream of cash or credit to satisfy some compulsive need.

There really is no addiction to credit cards, but an abuse — either by mismanagement or illness — that causes the ultimate problem.

Solution to Credit Card Addiction

So is there a way to overcome this problem? The answer might not surprise you since it’s as simple as paying off your credit card as soon as possible.

1. Each month pay off as much as possible. Double, triple your payment. Use cash to buy everything else until your cards are paid off.



2. Keep track of how much and what you are spending on each month. Try to eliminate unnecessary purchases.

Once you paid off your cards, a great burden of 20% in interest rates will be lifted off your shoulders.

If you decide to use your cards again, use them only for the monthly expenses and pay the entire credit card balance off each month avoiding late fees and interest.