No Credit Needed or Rewards Cards?-Determine Your Personal Credit Card Usage Risk

by RC on March 25, 2008

One of the things that people struggling to get out of debt and start wealth building have problems with is the use of credit cards. Frequently, credit cards are the reason people start getting into debt problems, and they can certainly exacerbate the situation.

You hear the same story over and over, someone will either work to pay off credit card debt, or take out a home-equity or 401k loan, only to start charging things again and building the balances on their high-interest credit cards again. Certainly, one can take measures to prevent this, by cutting up your cards, freezing them in a block of ice, etc. Part of the reason a lot of people, and I include myself in the number, fall back into their bad habits with credit card usage is a lack of an honest assessment of their ability to manage credit card usage in a responsible manner.

To make matters worse, there are certain benefits to credit card usage that many people find enticing. Cash back rewards cards or zero balance transfers give us the promise of “free” or “fast” money, with little or no effort on the part of the consumer.  But they are not without risks, especially for people who have had credit card problems in the past.  Part of the reason I am now digging myself out of appx. $10k in credit card debt is because, I believe, that I am in a “high risk” category. I have always had a problem with running up credit card bills for what I considered important stuff or “emergencies”. I am sure you can probably guess, most of these things were neither really important or real emergencies.

 However, I have always paid my credit card bills on time, and eventually in full, only to run them back up again.  I think that because I always paid my bills I felt like I was managing my credit cards, when in reality they were managing me. It has only been the last 6 months or so, when I came to the realization that I would never build real wealth by continuing along the same path, that I realized I even had a problem.  For me, it will probably be a long time before I will use credit cards on a regular basis again or get back into the “rewards” game.  I do feel like I would be responsible now, as I am not 100% credit card free anyway, but I don’t really fully trust myself.  I do still use them on occasion, but mostly for online purchases where I do not want to use my debit card, or for gas. I try to pay these off even more frequently than monthly. But I also have now built up an emergency fund to take care of real emergencies and no longer will rely on a credit card to bail myself out.

When you realize that your lack of discipline with credit cards is what likely got you into financial trouble in the first place, and don’t blame it on circumstances or bad luck, you then need to make a decision on whether you should really be using them at all.  Certainly, by stopping credit card usage for a length of time, one can begin to make strides on the road to becoming “debt free”.

By examining and determining your credit card usage “risk” potential, you can probably determine if you really should be jumping back into the world of credit card usage, balance transfers, or cash back rewards. Certainly, while many people are more than capable of using a credit card wisely and within reason, and can make money off of them, for others, frequently, the “rewards” are not worth the risk.

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