pros cons credit cards

Main Pros and Cons of Using Credit Cards

It’s hard to imagine in today’s credit-conscious society that there is anything bad about having a credit card. Of course, if you live in the other camp, it’s hard to imagine there is anything good about them.

The fact is, that with credit cards like anything else in the world, there are good and bad aspects.

As a consumer who has experienced the good, the bad, and the ugly when it comes to those little pieces of magic plastic, I’ve created a short list of pros and cons.

The Good

If you ever want to buy a home, having a credit rating is important. Having a great credit rating is even better.

By obtaining a credit card or two early on, you can begin to establish a track record. Be careful! Use credit cards with care and thought, buying only what you can afford.

A few missteps in the payment department and this practice can turn quickly to the ugly column.

The Bad

Interest is the cost consumers pay to the credit companies for the luxury of spending their money. Shop around to find the best interest rate you can get, and then be sure to pay more than the minimum amount due each month.

By paying more, you pay less in the end. Less interest, that is.

The Ugly

After my divorce, my budget took an unexpected nosedive (not uncommon for anyone in today’s age of unemployment).

When I couldn’t pay my credit card debts, I found the companies sold my debt to far more aggressive collection attorneys whose practices for collection can rival gangsters in old Cagney movies.

The best way to avoid harassing phone calls and maintain your sanity is to not apply for credit cards in the first place.

Are credit cards always a bad idea? I don’t believe so.

I know of a young man who used a credit card which offered points toward a new car from a large manufacturer all through college.

He only charged items he would have paid cash for and paid off the balance every month.

When he graduated, he paid thousands less for his first new car than he would have otherwise.

This practice takes immense discipline and planning. Ask yourself if you have what it takes to use a card in this manner, and you can add it to the “good” column.

If you can’t? Be sure you don’t end up feeling ugly.

improve credit score

Tips to Improve Your Credit Score

So, you want to buy something big. Something REALLY BIG like maybe. hmmmmm . . .a car or even bigger, a home!!

Well, the first thing you will have to do is tone down that buying enthusiasm and think clearly about your credit standing and credit score. Ask yourself, is your credit standing good? Then, what’s my credit score?

Now you say to yourself, “Now what? How am I going to get that personal loan at a good interest rate? I know I can use a service like this one, but what are my other options?”

Take a deep breath, that’s it, in and out slowly. Close your eyes and put yourself in the lender’s shoes and think about what they will be looking for when they check your credit. Could you be one of the following:

* Hey Big Spender!

You already have been having a good time and your current credit cards show you have high balances. Or you moved some high interest balances to a lower interest balance not really thinking that your big spending still shows the same total amount owed.

* I Have More Than You!

Having a credit card from every retail store you shop at cause they said, “Oh, you can get 10% off your purchase today, would you like to sign up?” is not good. Did they also tell you that their interest rate maybe 24% on that same purchase?

* Time? What’s that?!

This one is easy, are you paying your bills on time?

If you are any of the above, oh boy do you have a problem, but don’t worry, be concerned, very concerned. And believe it or not, you do have the ability to fix your credit so you can get that car or home at a good interest rate.

So NOW you ask yourself again, “Now what? What do I need to do?”

That’s easy. Just follow these easy steps:

* Don’t Close Me Out!

Don’t close any accounts. Your credit score will go down.

* Get Me In The Mail On Time!

Payment history is the one most important factor that affects your credit score. Getting in the habit of paying your bills on time can be a powerful tool for increasing your credit score.

* Hey, Keep It Down!

Lenders like to see a cushion between your credit card limit and the amount you owe. The more you pay off, the bigger the space, the better your credit score.

* Bad, That’s Very Bad!

Missing some payments may not seem bad to you but to your credit score and standing it is.

* Hey, Check Me Over!

At the least, check your credit report once a year. However, most experts recommend twice a year

Now that you know what to do. Go out and get that BIG, that REALLY BIG something like maybe that car or a home. And continue to follow the do’s and don’ts about your credit and you will always be in the $$$$$$$$.

What Do I Need to Know About Being a Guarantor?

guarantorI received a telephone call at work the other day from a very angry person.

This person had received a copy of their sister-in-law’s bankruptcy notice and wanted to know why she was receiving this mail.

I calmly explained (as I have hundreds of times before) that she was listed as a co-signor on one of the credit cards and, therefore, she received notice as prescribed by the bankruptcy code.

The questions then began to pour out, as they always do, when I have to give this speech to a caller.

Unfortunately, I cannot respond to her questions even though I may know the answer because our office represents the debtor.

All I can say is she should contact her own attorney to find out what she can do to try to protect herself.

The problem is that there is probably nothing she can do if she willingly agreed to guarantee her sister-in-law’s debt.

What is a guarantor?

Investopedia defines a guarantor as “one who becomes secondarily liable for another’s debt or performance.”

Basically put, if the sister-in-law does not pay, then you do. Unfortunately, there are many people who do not understand that being a cosigner obligates you to pay that person’s debt if they default.

Black’s defines cosigner in part as a person who signs a document with another “often assuming obligations and providing credit support to be shared with another obligor(s).”

By cosigning a credit card application or a loan application, you are agreeing to be liable for the debt with the primary applicant.

Signing as a guarantor adds another layer of protection for the lender because now you have guaranteed the debt and are agreeing to pay the debt if the borrower (in my example the sister-in-law) defaults on the loan – – including if she files bankruptcy.

Is it wise to cosign a loan for someone?

Husbands and wives cosign debt on a regular basis and parents often help their children by cosigning for their first car loan or being a guarantor on their first apartment lease.

However, you must remember that not everyone manages his or her money as wisely as you may manage your money.

Furthermore, you need to be prepared to absorb the loan payments into your own budget should the primary applicant default on the loan agreement and stop paying the monthly payments.

In my example, the sister-in-law filed a Chapter 7 bankruptcy and stopped making the payments, so now the angry relative will have either to make the payments or have her credit ruined as well.

Bottom line

As a child growing up, I watched my father managing money and budgeting our household expenses and, as I got older, what I noticed the most was that bills came before any “fun” spending.

My father drilled into my head that you never spend money you do not have and you always pay your bills on time even if you must give up something you want to do so.

I wish I could have followed his example better as it would have saved me from some of the financial mistakes I have made as an adult. There are three bits of advice about managing money that my father gave me that I have always followed:

1. Never loan money you do not have – If you cannot pay all your bills and living expenses without that money, then do not loan it to anyone.

2. When you do loan money treat it as a gift – If the person pays you back then that is wonderful but if you never receive a dime of the money back then you will not be hurting for it or you should have never loaned it in the first place.

3. Never cosign or be a guarantor for someone unless you can afford to pay the loan payments yourself – If you can afford to pay the loan payments yourself without stressing your budget and want to take the chance then it is your decision.

However, if you cannot afford to pay those loan payments yourself then do not cosign or guarantee the loan because if that person defaults you are stuck making the payments or ruining your credit.

NOTE: Nothing in this article is intended as legal advice. Questions about cosigners, guarantors or legal contracts should be answered by a qualified attorney.