This article was published in the "Martinelli Newspapers" in the July 27, 2006 weekly issue of The Westchester Crusader, The Rye Chronicle, The Eastchester Record, The Pelham Sun, The Sound View News Home News & Times, The Mt. Vernon Independent, Harrison Independent
and North Castle News

Life and Money - "The Wise Use of Credit Cards "

By Frank Sisco, CPA, PFS

(Word count = 980 plus 67 words for About the Author)

Although credit cards do have many benefits, too often I have seen them lead to overspending.   If you respect the awesome power of credit cards, you are more likely to benefit from using them rather than be hurt by abusing them.   Although you may think you know your tolerance for credit, you may find the precautionary guidelines in this column to be beneficial for you or someone you know.   Also, you may learn how to better use the cards and put more money in your wallet.

A. Benefits of credit cards. - Used by millions of people, credit cards offer many benefits including:

1. Convenience - Whip out a card, get it swiped by the merchant or read the card number over the phone, and voila you get the product or service you want. No need to carry lots of cash that could be lost. Also, some merchants, like certain auto rental companies, do not take checks, debit cards or even cash.

2. Delay payment - With a check, the payment comes out of your bank balance when your check clears, usually in a couple of days. With a debit card, the amount of the purchase is segregated as “on hold” from your bank balance. With a credit card, you have many days, usually thirty, from the end of the statement month, to pay for the purchase, thus allowing you time to come up with the funds or enabling your funds to earn interest at your bank.

3. Recordkeeping - The monthly statements detail the payee, transaction date and amount. Many credit card companies issue annual statements that categorize the expenses, helping in budgeting and tax return preparation.

4. Access to cash - Most cards offer lines of credit you can tap when you need a cash advance, charging interest on the unpaid balance, but usually at a high rate like 18%.   I've seen recently a Chase Master Card statement with a 29.9% annual rate!

5. Credit worthiness - You can establish a good credit record by getting approved for cards, using them, and paying the balances timely. This will help when you apply to a lender for bigger purchases like a car or a home.

B. How to make credit cards work harder for you .  

Here are nine ways you may try to make credit cards work harder for you. (1) Shop around for the lowest rates and fees. (2) Always pay off your balance to avoid any interest charges and prevent abuse. (3) Consolidate into just a couple of cards, saving fees and time. (4) Use cards to buy when there are extra perks like airline miles. (5) Get cash to bail out a cash bind (e.g. buying computer equipment before year-end to get the tax deduction).   (6) Go online to view transaction history and simplify payment.   (7) Shun teaser offers that disguise low introductory rates with big increases later or high fees.   (8) Get cards with big lines or credit to be used in emergencies.   (9) Periodically check your credit report.

C. Steps to take if you are in trouble with credit cards

 The ease and power of credit cards is dangerous for the chronic spender and debt abuser. Credit cards are a contributor to the rising problem of financial failure among middle-class Americans. In 1980 there were about 310,000 families claiming complete financial failure, quadrupling to over 1.2 million in 1999, and hundreds of thousands more today.   It is difficult to break the detrimental cycle of overspending, guilt, borrowing, repayment, overspending, etc. The cycle often leads to significantly damaged self-esteem, broken relationships, and in some cases financial ruin. Here are step if in trouble.

1. Fess up. -  If you have been wrong in your spending or a victim of a high medical expenses or a lost job or business, leading to being over your head in debt, be honest and come clean by admitting it to yourself, to your partner and to whoever has been hurt.

2. Get help and make a plan. - If yours is a recurring problem, get guidance from experts like Consumer Credit Counseling Service, a federation of non-profit agencies who help people develop different behavior patterns and work out deals with existing creditors for lowered interest rates and extended payment plans. Seek out financial advisors who are sensitive to the needs of those in over their head. Some advisors are specialists in sorting out whether the problems are so severe that bankruptcy should be considered, and outlining the ramifications.

However, most people who consider bankruptcy would be better off trying to work matters out with their existing creditors, if possible, even though the repayment process might be long and arduous. Out of a need to fulfill a repayment schedule, a debtor often develops better spending habits and creates new and better sources of income, usually lasting a lifetime. As part of the process of working your way back, it is okay to share your situation and objectives with relatives and close friends, who can be an important source of support when times get rough along the way. Another important source of support is prayer.

3. Get substitutes for credit cards - A debit card is a good alternative to a credit card. You can use it for most purchases, with the advantage for the credit abuser of not being able to spend more than is in your linked bank account. Abstinence from borrowing can sure help you kick the habit of overspending. Debit cards often have higher fees, and less protection against theft, but these disadvantages are not deal breakers. Using a checkbook or using cash are also good substitutes. Another thing to substitute is your need to spend as a way to cover a deeper problem. Face the problem and work to resolve it, or at least find another outlet such as a low-cost hobby or a sideline business or volunteer work.

About the author.

Frank Sisco is a CPA and Personal Financial Specialist, and author of many articles about personal finance and issues of life and money.   His firm, Financial Management Corporation, is located in Harrison, NY.  Frank resides with his wife and daughter in New Rochelle, NY.  He can be reached at 914.381.3737 or by email at ideasmoney@aol.com.   Visit his website at www.LifeAndMoney.com, which contains this and prior articles.