Credit Cards and Your Financial Plan
When it comes to financial planning, credit cards are a pretty divisive subject. Some financial experts advise to stay away from credit cards, since they make it easy to rack up debt and live beyond your means. Other people see credit cards as a useful financial tool, provided you use them responsibly and wisely. The Argument against Credit Cards Owing a lot of money, especially a lot of high-interest revolving debt, is bad news for your long-term financial health. Plus, owing a lot on your plastic suggests there’s a disconnect between your income and your expenses. But rather than forcing you to stick to a budget and get your spending under control, credit cards allow you to spend more than you earn while delaying the consequences of that overspending. The Argument for Credit Cards One big advantage of using credit cards is that they allow you to build credit. Working to develop a good credit score now may help you down the road when you want to buy a house or make another major purchase. Credit cards can also be a way to manage irregular income. If you can’t count on receiving a paycheck every two weeks, but you know the money will eventually come, a credit card can help you meet daily expenses. With this strategy, it’s important you pay your balance promptly, so that you don’t get hit with steep interest charges and end up with a mountain of debt. If You Use Plastic Despite some drawbacks, credit cards are a popular tool in Americans’ financial arsenal. Because online account management features make it easy to track credit card purchases, many people find that using plastic makes it easier for them to budget and track their purchases. With a few clicks, they can easily see how much they’ve spent in a certain category in the past weeks or months. And if you’re new to budgeting, you can comb through old online statements to get a sense of how much you spend in different areas, like groceries, gas, and entertainment. As mentioned above, credit cards can also be a valuable tool to build credit. If you’re worried about controlling your spending but still want the credit-building properties, consider a secured card or one with a low credit limit so you’re less likely to overspend. Savvy consumers can also make their credit card work for them by taking advantage of points and rewards programs. The variety of credit card rewards options is immense, ranging from cash back deals to discounts on gas to frequent flyer miles and hotel points. If you are using a card to get rewards, make sure you’re not carrying a balance or spending more than you normally would just to get perks. Doing either will quickly erase whatever benefits you get from using the card.
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This newsletter was prepared by Integrated Concepts Group, Inc. The opinions expressed in this newsletter are for general information only and are not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. The views expressed are those of the author and may not necessarily reflect those held by PlanMember Securities Corporation. Material presented is believed to be from a reliable sources and PSEC makes no representation as to it accuracy or completeness.