Responsible Credit Use: Good For You And Everyone Else

March 31st, 2009

money1Responsible use, ultimately, is what separates those who benefit from credit cards and those who fall victim to its failings.  Credit cards, after all, are just an available tool.  Whether it serves you or hurts you depends on how you exercise its capabilities.

There are two types of credit card users.  The first one are the diligent types, who pay off their monthly debts in full and refuse to carry a balance.  If you’re one of these, congratulations.  This type of habit allows you to use your credit cards, reap some great benefits (points, cash back, convenience, etc) and remain relatively debt-free.

The second type of user is the type who carries a balance.  Whether they have their cards maxed out or just have half of it continuously used up, they’re the people from whom credit cards earn their multi-million business from.  They’re the ones affected by steep interest rates, late charges and a whole host of other fees.  Ironically, they’re also usually the ones who derive the most benefit from their cards, able to stretch credit to serve them for longer periods.  If they’re using the expenses to invest in a business or anything else that potentially appreciates in value, they could be end up ahead in the end.

Here’s where things really get tricky.  While the first type of credit card user doesn’t really get the most value out of their card, they’re also never in danger of over-stretching their financial capacity.  As such, they rarely get in trouble when emergencies and problems throw their budgets out of balance.

The second type, however, are the ones who end up in a credit mess.  When you have a large revolving balance and exigencies happen, you’ll always end up defaulting on one or two payments that can really cost you big.  Even worse, large-enough financial difficulties can leave you unable to settle your debts.

Ideally, all credit card users should be like the first type.  Sure, credit card companies won’t be making as much.  Yet, it’s still the best thing overall for our economy.   Can you imagine losing your job in this current financial climate with a revolving balance in tow?  I really hope we’re all learning something from the current state of finances the world is in.

noel Posted in Credit Card Guides

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