Letter from a Credit Card

10 May Letter from a Credit Card

Hey credit cardholder,

Thanks for maxing me out every month. Every time you purchase something beyond your means, you ensure the continued survival of my kind. I know it’s to your detriment, and at the very least it makes you less financially stable, but it’s for a good cause, right?

Financial experts keep telling you about managing me properly, and being selective in how you use me. But you need me. You need me to make major purchases, to shop online, or to get that really hot outfit to go party. Plus plastic is safe, right? Who wants to walk around with all that cash? It’s messy? Makes your wallet all fat and stuff. And let’s not talk about the nefarious characters lurking around, waiting to relieve you of your hard-earned cash.

Advice columns tell you things like – only use your credit card when you’ve made a previous decision to make a purchase. Pre-planned purchases are the safer way to manage your finances.  But think about the miles and other benefits you get from using me. I’ll admit they don’t add up that quickly, but hey you’re getting something out of this relationship.

Between you and I, I can be your friend or your worst enemy. Debt isn’t always a bad thing, depending on what you use it for, and how you manage it. So things like shopping – with no end in sight – for clothes and shoes definitely won’t help you manage your credit card bill properly. You’ll forever maintain a high credit note at the end of the month, and the higher the note, the higher the interest. The higher the interest, the more you pay in the end.

Making large purchases on your credit card also has its pros and cons. There’s the obvious convenience of not having to walk around with a wad of cash. You can also earn major points for large purchases. At some institutions, you may even get a discount for using your credit card (e.g. 20% off car insurance with Colfire on their women’s plan). On the other hand, you really shouldn’t come near me to pay for things that you consume quickly, such as meals and vacations. Think about it, if you go to Ruby Tuesdays or Zanzi Bar twice a week, when you add that up at the end of the month, that’s a pretty penny. If you can’t afford to pay off your monthly bill in full in a month or two, then shy away from the purchase because otherwise you’re faced with the risk of building up credit card debt pretty fast. It’s up to you to ensure that you make reasonable payments that ensure you manage your credit card properly, because regardless of what brand I’m under, my name is debt. Setting up a standing order for a minimal payment, as well as making a payment relative to your balance, may also help you to stem the building interest.

By now you might be wondering why I care so much. The thing is that I’m actually useful to you. If you just get to know me better, we could have something good. I don’t want you to “do so” and x me out of your life. Some people would probably tell you to “do so”6, but they don’t know what we have… an understanding. I look nice and glossy, and you get all the things you want. I know that for you to keep using me, I’ve got to help you figure out a way to do so properly.

So here are some tips:

1. Only carry your credit card when you have specific plans to use it. Otherwise you are just tempting yourself.
2. Get a handle on your spending. Track how much you spend. Take notes if you need to.
3. Decide what you’re going to spend cash or credit on, and when’s the best time to spend either of those.
4. Pay off your highest-rate debts first.
5. Don’t fall into the minimum trap. Yes you can set a minimum standing order, but consider how much of the principal it covers. You may not want the bank to debit your account for a large sum every month, so what you can do is set a minimum amount to pay, and make an additional payment based on your credit card balance.

Sincerely,

Credit

Image credit: The Truth About.