By Benjamin Temin
Welcome to another installment of our financial wellness series. Last time we looked at the importance of having an emergency fund, a foundational step to building financial stability. This time, we will discuss another important topic that can’t be ignored, credit cards. The goal isn’t to become an expert but to be an informed consumer, which can help us make responsible choices that fit our needs.
One of the most ever-present features of our complex, fast-paced economic lives is the credit card. It seems like every day we are bombarded with offers for the newest cards that have more features, points, and enticing rewards programs than the next. To complicate matters, personal finance experts are divided on the topic. Some will say they are evil, cut them up and don’t fall into their trap. Others say that all you have to do is ‘x, y, z,’ and you can beat the companies at their own game and reap the rewards. On an individual level, you probably know someone struggling with credit card debt, and chances are, someone else you know took a great vacation “just using points.” Given all that, it is perfectly understandable to feel bewildered.
Here are a few important considerations that can help you decide what approach is right for you.
- You do not have to use credit cards. Just because it seems so common does not mean it is really working for everyone. A quick google search on average the American household’s credit card debt should be enough to convince you of that. It can be hard to resist the ‘peer pressure’ and constant advertising, but sometimes it is necessary to build that inner strength to live a financially healthy life.
- If you do use one or several credit cards, be proactive and vigilant. Remember that credit is a loan and needs to be paid back. Using credit will help boost your credit score, but only if used correctly. That means always paying your bill on time and keeping your spending on the card well below the credit limit. If you do carry a balance, the interest rate is often very high and can be raised even higher if you miss payments.
- Be selective about which credit cards you use. It is important to read the fine print. Some offer cash back, some have travel rewards, and the list goes on. Think about what rewards are most practical for you and do your research. There are great resources for comparing and calculating rewards, such as Bankrate and Credit Karma. In general, cards offered at retail stores, or ones offering a free towel or t-shirt for signing up are best avoided.
Another thing to consider is where you are on your financial wellness journey. If you are focused on paying off debt, or just starting out on your own, it might not be the right time to start using a credit card. On the other hand, using credit cards can provide convenience and security to your transactions, and the rewards can potentially have real value if approached correctly. Either way, it is always a good time to become an educated consumer so you can make the right choices when it comes to your financial wellness.
Benjamin Temin is a Coordinator for Economic Sufficiency at Jewish Community Services.
Jewish Community Services (JCS) is dedicated to providing programs and services that help people of all ages and backgrounds achieve their goals and enhance their wellbeing.
To learn more, visit jcsbalt.org or 410-466-9200.