>> Tuesday, March 24, 2009
Q. Should I stop using credit cards?
A. Not necessarily. Some advisers suggest hiding credit cards under the mattress during tough times, and, indeed, wielding a debit card has become a popular alternative. But using your debit card exclusively has disadvantages -- fraud and error protections aren't the same -- and credit cards can be part of a responsible spending plan. They can also help you establish a solid credit history. "Unfortunately, some people misuse credit cards by thinking, 'I'll do this now and get myself out of it later,'" Stone says. "But balances grow, and these people are in trouble before they know it." So treat your credit card as if it's a debit card, recording each transaction and subtracting it from your bank balance. Then pay your bill in full each month.
I want to point out that if your debit card carries the Visa or Mastercard symbol they carry the SAME fraud and error protections that credit cards have. (See this great debit card article.)
Also, it is very, very easy to only pay minimum balances on a credit card. If you are disciplined enough to not run up your credit card and pay it off each month, well, good for you! Most people are not that disciplined. In my opinion, credit cards are not part of a responsible spending plan. It is way too easy to say "I'll pay it off next month" and let the debts ride until you have too much debt and not enough money to pay it off.
I have been following Dave Ramsey's plan since early last summer and we have paid of thousands and thousands in debt. It really works. Our goal is to pay off our home in 10 years and have a zero credit score in 20!
One part of Dave's plan that I was hesitant (ok, practically had to be forced to do) was the envelope system. I didn't want to be "limited" to the cash in my pocket. But what I found was that my spending was more controlled, I bought only what we needed and those things I thought I had to have really weren't worth it if I was paying cash. It hurts to pay cash! (In a good way!)
Want to win one of Dave's envelope systems? Go visit The Trendy Dollar. Leave a comment for her then search the rest of the site. She'll get you pointed in the right direction. (Did I mention her family recently paid off all their consumer debt?)