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Gaudreau News
Is there a Right Way to Use Credit Cards?
According to a national survey by Javelin Strategy and Research, credit card spending is down, especially in the 18-24 age market. Does that mean that we Americans aren’t spending or are we doing it differently?
According to the NY Times report, the survey showed that “fifty-six percent of consumers said they used a credit card in the last month.” That number is down from nearly eighty-seven percent in the same time period from 2007. According to James Van Dyke, Javelin’s president, the reason for the change is that consumers are shifting away from credit card use and instead turning toward bank debit cards and re-loadable cards in an effort to better control their spending. The most noticeable downward shift is in the 18 to 24 year-old demographic where recent changes in the CARD Act now require a parental signature on credit card applications for college aged youths.
Because of this shift, the credit card industry is increasing its direct mail efforts and sweetening the pot by offering lower interest rates, reduced or zero fees and rewards programs. Review these offers with great caution, especially the sections regarding increasing APR. Credit card companies use the lure of low interest rates with a quickly escalating rate over nine or 12 months. Often these rates can start as low as nine percent and skyrocket upwards to twenty-three percent or higher. Also examine the late payment penalties as one missed or late payment can nearly triple the interest rate the bank can charge not to mention an excessive late payment fee.
Using a credit card can be part of a successful monthly financial plan if you are smart about your spending and follow a few easy rules:
- Spend only what you can repay in one month. Yes, credit cards allow for a revolving balance, but that doesn’t mean that you should carry a balance for long periods of time and purchase outside your financial means.
- Use the credit card for travel and emergency purposes only. Again, if you must charge an emergency expense, have a plan for rapid repayment of the debt. By making over the minimum monthly payments, you’ll avoid snowballing interest charges and quickly pay down your charges.
- If you are giving the credit card to a college student, set a dollar limit on the card, or even better pre-load the card with a set amount, say $500.00. Before you hand over the card, have a serious conversation about financial responsibility and what it means to ‘charge’ expenses and how long it could take to repay them at the minimum monthly payment.
Are you noticing a shift in your behavior with regard to credit card use versus cash or bank debit cards? Are you spending less overall because of the slow economy?