Credit Card Basic Knowledge

A credit card is financial oxymoron because the thing that makes them attractive also makes them dangerous. Of course I am referring to the ‘ease of use’ factor. The main case for plastic is that it takes the hassle out of making purchases both large and small, but this has some not so unexpected side effects. The first is that by eliminating cash we also get rid of our spending boundary.

We are now not limited to the money we have in our wallets but by the size of our credit limit; which unfortunately, more often than not, does not correlate. The second is the fact that the cost of this convenience is actually very high. When you add up the interest on your purchase, assuming you are not paying off your balance in full on or before the due date, the risk of late payment fees, overdrawn fees and even identity theft, you have to ask yourself if they are worth it.

You have probably already made the decision to stop using credit cards but you may have been so seduced by the luxury of plastic availability that you are not sure how you are ever going to live without them. Here’s a list of helpful tips below if you want to stop using credit cards:

1.Destroy the ones you have. You may think that you are strong enough to keep your card on you for ‘emergencies only’ but it is better to be safe than sorry. I have seen even the mighty fall beneath the irresistible pull of plastic, so before you start saying things like ‘buying this pair of shoes is an emergency… it will help boost my spirits and carry me through the work week so I can make money to get out of debt.’ These mind tricks are a sure fire sign that you are not as strong as you think and the best bet would be to take a huge pair of scissors to your credit cards now.

2.Stop the influx of new offers. There is simply no point in getting rid of your old cards if new ones keep showing up at your door. One of the easiest ways to kick the credit habit is to put some distance between you and access to credit cards. You can stop receiving unsolicited offers in the mail by sending a letter to the major credit bureaus or calling 1-888-5-OPTOUT. You need to provide your name, mailing address, phone number and social security number to complete the process.

3.Devise a monthly budget. Now that you have cut your ties to credit you are going to have to come up with a spending plan. Many people have no idea how much money they spend each month when they use credit cards. To make a workable budget you should document your income and make allocations for all your major fixed expenses, such as mortgage or rent, childcare, other loans and so on. Your discretionary spending allocations; which would include groceries, transportation, and entertainment, should be realistic. When you have these basic items down you can then estimate an amount to dedicate to savings by subtracting the total of your expenses from your income. If you come up with a negative figure this would most likely represent the amount you were spending on credit to supplement your lifestyle. In other words, you were living beyond your means and you would have to slowly find a way to cut back until you regain control of your spending.

4.Pay bills using an online account. When you quit credit all of a sudden things seem a little inconvenient. You can’t phone in a payment or make recurring charges to your card and you may be tempted to fall back into the trap. You can save yourself by setting up an online account so you can use your own money to pay bills online.

5.Plan before you leave the house. Now that you don’t have credit cards to swipe on a whim, you are going to have to think ahead. This may take some getting used to, but it will definitely help you to schedule your large purchases and put a cap on frivolous spending. Over time this will amount to increased savings and more responsible choices. Not a bad move at all and definitely worth the initial pain of planning in advance.

If you follow this simple five step plan you will be able to kick the credit habit and live within your means. Choosing to do this may mean the difference between building a savings account and watching a mountain of debt pile high. I know which I would prefer… how about you?

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