Credit Cards

By Ginny Frizzi

November 19, 2010 6 min read

Credit cards have become a real problem in the United States. According to an online quiz from PBS' "Frontline," more than 144 million Americans have general-use credit cards, but only 55 million pay their balances in full each month. Furthermore, the average family has eight credit cards and owes more than $8,000 on them.

Those figures may be shocking, but there is no reason every American can't take control of credit card bills. In fact, consumers should approach it as a game they are playing to win, according to Denise Winston, a financial educator and the founder of Money Start Here. "I'm a banker, and I play to win," says Winston, who recommends that consumers educate themselves on the subject. "The banks keep things a secret and make it complex when it comes to credit cards."

The best way for consumers to educate themselves is by learning to ask the right questions, especially if they are considering applying for additional credit cards. "Ask yourself: 'Why do I need an additional card? How and where would I use it? Would the card be for emergencies, a backup card for safety or for rewards?'" Winston says. "You should also ask yourself whether you will carry a balance on another card and, if so, whether it is worth the impact to your credit score."

Winston points out that opening new credit card accounts is part of bankers' and salespeople's jobs, so it is up to the consumer to decide whether opening a new account is really necessary or is in his or her best interest. "As a banker, I have sales goals, and so do clerks in stores, who may need to sell so many new accounts per day," she says. "Sometimes a store will have an offer -- for example, save $5 or 10 percent off your first purchase -- for opening a new credit card account. It may seem like a good deal, but you need to think on a more long-term basis. You're not making a strategic decision when you just add more credit cards." She adds that credit card usage accounts for about 30 percent of a person's credit score.

When you are looking to add a general consumer credit card -- such as a Visa card or a MasterCard -- to your wallet, Winston advises that you determine whether you will be carrying a balance or primarily using it to accumulate rewards, which often come as points that can be redeemed for free airline tickets, hotel stays or merchandise. "Be sure to look at the monthly rates on a balance, the annual fee and the grace period for paying your bill," she says. "Also, look at the rate of reward accumulation, any additional fees, such as for spending over your credit limit, and any added protections or discounts."

Protection can be especially valuable, according to Winston. "Many credit cards provide travel protection or extended warranties on items that you purchased with their cards," she says.

In addition, consumers should consider the relevance of each card to their shopping habits. "What is the purpose of the card? Will you use it a lot, or do you usually pay cash?" says Winston, noting that it might make more sense to use one or two general credit cards instead of numerous individual store or specialty cards.

If you are interested in rewards, it is wise to keep the card active, make your payments and claim your rewards at once. However, the realistic usage of your rewards is also something to consider, Winston says. "If you only fly once a year, a card that primarily lets you accumulate miles for travel may not be the best choice for you. You need to strategically decide what is best for your circumstances."

No matter the reason for choosing your card, it is imperative to use your card wisely. Too many people treat credit cards as if they are savings accounts, according to Winston. "It's easier to spend money by using your card because the actual money isn't visible, unlike when you go out with cash and hold it in your hand. You know exactly what you are spending and how much you have left with cash. The result can be a shock when the statement comes in at the end of the month."

Winston offers a simple solution for keeping credit card purchases under control: "Log every charge in your checkbook register. I do it in colored ink so they stand out. Subtract each charge from your ongoing balance, and then write a check at the end of the month to pay the bill, because you have the money in your account."

Whether you like them or not, credit cards are here to stay. "Try to book a hotel room or rent a car without one," Winston says.

Individuals who have lost their credit cards or are unable to get one may have to look toward secured credit cards. Secured credit cards require a designated deposit, often $250 or $500, in a bank account that serves as a guarantee. The limit on the credit card matches that of the deposit. "Secured credit cards have their place and are a necessary evil for those who need to re-establish their credit at some time," Winston says.

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