Stringing a Credit Safety Net: Part Three

In this final installment of the "Strining a Credit Safety Net" articles, we will discuss something everybody falls prey to at some point in their lives: temptation. Credit card companies provide all kinds of tempting offers to get you to use their cards. Many of them offer rewards programs or special discounts that can be great if used properly. But, if not fully understood, these programs can cause plenty of hardship. There is also the constant temptation to pay only minimum balances on credit cards every month. This is also a useful feature, but must be used in moderation.

Buy One, Get One

1. The First Temptation - Free Stuff! It's nearly impossible to do anything today without someone offering you something for free. Drive to the store and it's buy one, get one free day. Walk down the city street and someone's handing you a flyer to get a free cell phone. Watch television and someone will send you a free desk organizer with every purchase of a new-and-improved air purification system. We're slogging through these offers every day. Credit card companies use the same sales pitches. There are rewards programs that offer frequent flyer miles, discounts at stores, gym memberships, elite clubs, etc. These programs can be really useful. If you're a frequent traveler, those airline miles could really add up. But you have to understand that program fully. Many of these programs require you to spend substantial amounts of money before rewards begin to accrue. Many also require that a credit card bill be paid in full every month so that no balance is carried over. Larger stores offer similar programs. If you use their card to purchase items at their store, you get additional discounts. Again, this can be useful, but we have to consider the weight of it. Will these discounts encourage you to spend more money at the store than you need to? Is there an annual fee for the card? Do you have to make a minimum dollar amount of purchases each month? These things could outweigh potential savings from discounts.

Minimum Payment Trap

2. The Second Temptation - Minimum Payments: One of the most convenient things about a credit card is that you don't need to pay it off in full every month. Each card has a minimum payment that you must make. These are sometimes fixed dollar amounts or fixed percentages, or other formulas. This can be very useful for a person who may have some difficulty coming up with cash for a month or two. But you shouldn't let outstanding credit card balance go for much longer than that. You should use the ability to make minimum payments only when you have to. When you can, you should pay the bills immediately and in full. The longer you let that debt sit there, the bigger it gets. Paying credit card bills on time and in full saves you money in the long run. Having credit is a responsibility, not unlike driving a car. If you're out on the highway, you've got to pay attention to what you're doing. If you lose control there can be disastrous circumstances. It's the same way with credit. Using these techniques can help you to keep a firm grip on the wheel.