Sense & Centsibility Blog

How NOT to Use Your Credit Cards

I have a credit card that I use every once in a while. This particular credit card company (that shall remain nameless) sent me an email this week explaining four major perks of having this credit card. They even stated that my card is a "powerful financial tool". Credit cards definitely come in handy sometimes, i.e. for renting a car, earning rewards, or reserving a hotel room. However, there are things that you should never use your credit card for (keep reading). Here are the 4 "perks" this company promoted:

  1. Automatic bill payments

    This is a good one. Setting up automatic payments is a great idea to help take away the stress of paying bills. When you set it up, you no longer have to worry about missing or making late payments. Two things, though: make sure you have enough funds to cover those automatic charges and don't forget to pay off those expenses on your card each month and on time. Because if you start accruing interest and late fees, then using your card for automatic bill payments is not a good idea.
  2. Track expensesHand with credit card

    This is another good one. Some credit card companies will automatically track your usage and separate everything into categories, saving you time from tracking expenses on your own. Tracking expenses is a good thing to do so you know where your money is going and you can make changes as needed.
  3. Covering emergencies and other unplanned expenses

    No. Just NO! This made me so angry knowing they're encouraging me and countless others to use my credit card as a back-up plan in case of financial emergency. Charging for emergencies and then hoping you can pay it back later is a recipe for disaster. It's a quick way to bust your budget, add stress to your life, and cause you to worry about making credit card payments (likely for years to come...not to mention the added interest).
  4. Funding large expenses, such as home improvements or vacations

    No, no, no. Home improvements take time and planning so if you can't afford it now, wait until you can. And if it's a necessity and the time comes to get the project done, if you don't have quite enough money, look into a home improvement loan to finance part of the project with your local financial institution. With good credit it's likely you will get a much better interest rate than your credit card offers.

    Regarding vacations, some people might say "life is short, take the trip." However, before making that decision read Should you go on vacation if you are in debt? and think about the potential long-term consequences if you end up charging that dream vacation.

As I've mentioned in previous blogs, credit cards aren't always bad as long as you use them wisely. Using credit cards wisely does not mean charging vacations or using your credit cards for emergencies. Instead, be proactive before crisis strikes and think about what your back-up plan would be if your car broke down or you had a reduction in income. For more suggestions, read Using Crisis Budgeting During Tight Financial Times, Ideas to Balance Your Budget Without Increasing Income, and Ideas for Increasing Income. These tips don't have to be used just during an emergency; use them now so that you can build up emergency savings and gain peace of mind.

If you have credit card balances that seem to be barely reducing, a Debt Management Plan may be a great option for you. To find out if it is, schedule your FREE financial counseling session with a certified financial counselor with LSS. Call us at 888.577.2227 for a phone or in-person session or click to GET STARTED ONLINE. Take action today to conquer your debt!

Author Elaina Johannessen is a Program Director with LSS Financial Counseling.