Don't Do Debt.com

Pros and cons of credit card use

A recent comment to this blog asked about the pros and cons of credit card use. Here are a few that come to mind:

PRO: Using credit cards can be used to build credit.
PRO: Credit cards can be used to cover a financial emergency.
PRO: You don’t have to ask for anyone’s permission to spend money or to open a credit card.
PRO: You can do or buy things you can’t ordinarily do or buy, such as traveling, paying for school needs, etc. (I’ve heard of some students who actually pay for their college and/or their books and supplies on credit cards).
PRO: You can earn incentives such as frequent flier miles, something useful for people who frequently travel.
PRO: For those with the “buy now, pay later” mentality, it seems the world is yours when it comes to your first and second credit cards.
PRO: Many people believe (as I once did) that credit cards help conserve your cashflow- meaning that if you charge something to a credit card, you don’t have to use your cash to pay for it.

CONS:

CON: While credit cards can be used to build credit, if they are not used correctly and with regard to your credit report, using credit cards to build credit can quickly backfire and do more harm than good to a credit report. It's important to understand the importance of paying on time, how to demonstrate positive money management, etc. I'd suggest that people should understand credit reports before contemplating credit card use.

Incentive happens: A vision and money

The holidays are now officially behind us. Okay, well actually, tonight marks the end of the holiday season for me as I had one more party to attend this evening. I declined at the last minute as I felt compelled to write about some questions asked of me while travelling around during the past few weeks.

One thing I'm frequently asked after the madness of the holidays comes to a screeching halt, is how to have more money. One person recently expressed concern about her inability to save money, another asked about how to have more money to get out of debt. A mother asked me how to teach her sixteen year-old about money as she recently took on her first part-time job. Other questions have come up, too, but here are a few thoughts I had in response to these questions:

I don't have the perfect answser for anyone. But one thing I live by for myself is this: I have a vision for what I want to do with my life and my money. I have things I want to accomplish:

Q&A: Credit Card Use (III)

Q: I can't afford to pay my basic bills, I'm nervous about eventually repaying my student loans and it seems perfectly logical that a credit card will help me have more of my money. What should I do?

A: Think twice. Credit cards seem especially easy to manage in the short term but they can become expensive and messy in the long-term if mismanaged.

Q&A: Credit Card Use (II)

Q: Should I use a credit card to build my credit?

A: Credit cards are a big responsibility and mismanagement carries great consequence. Using credit cards to build your credit can backfire and you can quickly do more harm than good to your credit report. Building credit takes time, an abililty to demonstrate positive money management skills, and it's really wise to wait to use credit cards until you understand exactly how they work.

Q: How much debt is too much debt?

A: $2,000 in debt is a lot of debt, no matter how much money you make.

Q&A: Credit Card Use (I)

Q: How many credit cards should I have?

A: The technically correct answer would be one or two. If you have more than one credit card, your obligated to interest and penalty fees on all credit cards in your name. Think of this: You have to pay five credit card bills late one month. A late pay fee = $30. Total = $150 in late fee charges that one month alone. Additionally, your late pays reflect on your credit report (remember late payments erode your credit). The expense of multiple cards can send your money spiralling out of control in little time.

It depends on why you are considering a credit card. If you're hoping a credit card will help build your credit, this strategy can quickly backfire.

Credit report (II)

Q: How do I get bad credit?

A: First thing's first. Credit score: FICO scores range from 400-800. If you have no credit, you're somewhere in the middle. Your job is to take responsible measures to increase your credit score. Timeliness is godliness in the world of credit and paying every loan (traditional or a credit card, for example) is imperative. Late payments erode your credit. When it comes to credit reports, there are 3 factors to consider: Good credit, debt to income ratio, bad credit.

18 & up: This is for you

$10,000 Debt is a lot of debt to repay no matter how much money you make...

Everytime I turn around, I hear people say, "I wish someone had taught me about money when I was a freshman in college, or even back in high school. I'm still paying for credit cards from college or shortly after."

I write this to tell you that there are so many demands on your money. And money, when you first start out, is fairly hard to come by. Actually, money is always fairly hard to come by. You'll find forever that it's much easier to spend money than to make money.

It's difficult to play catch up if you enter the real world in debt.

Credit Score Ingredients: Mix of Success

If you your credit was pulled today, do you know how you'd stand? Good credit? Bad credit? How's your debt to income ratio? Do you know what's bringing your credit down or pushing it up? A report recently across my radar suggests that a FICO score is comprised of the following:

10% Type of credit in use
10% New Credit
15% Length of Credit History
30% Amounts Owed
35% Payment History

Payment history is highest in the mix: Late payments erode your credit score. Period.