In a new age of credit – spend wisely

By Tim Dameron
Columnist/Rocky Mount Telegram

Forty years ago, debt was almost unheard of.

Your parents most likely paid cash for their first homes and cars with family and friends as their financial backers. That was then, debt is now.

Today, debt and instant credit are part of our everyday vocabulary. Americans are carrying a total of $683 billion in credit card debt alone according to a recent MSN Money report.

That is not the amount charged every month but rather the outstanding unpaid balances on which people pay interest.

The case for credit.

In today's modern economy consumers are using credit cards as a form of payment for just about everything, from paying your rent to purchasing gas, groceries and fast food.

There are many reasons for this trend, first and foremost convenience. Not having to carry cash with you wherever you go is often an easier and safer way to make purchases.

Using cards can also be rewarding if you have aligned your card spending with an attractive rewards program that pays you back (perhaps with a cash rebate or with double rewards points) for your purchases.

Credit cards also help to establish a history of financial responsibility and are often mandatory for certain situations, such as booking a hotel room or renting a car - they are a modern necessity. Those who don't have any credit cards at all can be denied a loa or credit when they really need it.

But knowing that credit cards are now an integral part of our modern financial lives also begs the question - how many credit cards should you have?

A good start would be to have far less then the Guinness Book of World Record holder, Walter Cavanagh who has 1,397 individual valid credit cards.

Typically, you should consider holding approximately three to six credit cards, but unfortunately there is no magic number. Every person has his/her unique financial situation and individual credit card needs, depending on their spending habits and lifestyle, business needs and more.

Spending wisely – factors to consider.

Simplicity - Make sure you can keep track of the credit cards you have and pay them on time. Owning fewer cards may make it easier to have control over your total debt load.

You should think twice about having numerous credit cards for individual retail stores and gas stations.

These stores often accept the credit cards you already own. Plus, retail and gas station cards tend to charge a higher interest rate than other cards.

Reduce temptation - The more credit cards you have the easier it is to over spend and get into debt problems.

Rewards - Building rewards through loyalty programs with a few choice cards, such as Membership Rewards from American Express, can build more valuable redemption opportunities if collected on fewer cards. You can redeem points for airline miles, hotel rooms, and gifts.

Managing your credit cards and debt.

Regardless of how many credit cards you have it is important to use them responsibly. To help, here are some strategic steps for opening and managing credit card accounts:

Step 1: Know your cards - Before you sign up for a card, ask yourself some key questions, such as: Does your credit card have an annual fee? Are there grace periods? What are the penalties if you are late or miss a payment?

How valuable is the rewards program for the things that are most important to you? Then find out exactly what your credit limit and interest rates are for your credit cards.

Step 2: Pay in full - A good strategy is to have credit cards for convenience and pay the balance each month in full. If you are unable to pay in full each month, make sure to pay more than the minimum each month.

Another option is to use a charge card, which is payable in full each month. This can help you stay on budget and because it's payable in full each month, there's no interest charges.

Step 3: Keep your credit spending in check - A good rule of thumb, to keep your spending in check, is to make sure your credit card payments will not total more than 15 to 20 percent of your current income, after housing costs.

Step 4: Canceling a card - If you need to cancel a card do not simply cut it up. You must notify your credit card company that you want to cancel otherwise the card will remain on your credit report.

Step 5: Seek help - A qualified financial advisor can help you create and manage a comprehensive financial plan to help you reduce your debt, use credit cards responsibly and reach your long term goals.

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