Keeping Your Credit Cards Under Control

There are plenty of great reasons to use credit cards. Credit cards eliminate the need to carry large amounts of cash, and many of them offer excellent rewards programs, enabling card users to earn airline miles, cruise ship rewards and other perks by purchasing everyday items like gasoline and groceries. Discover Card, for example, offers one of the most well-known "cash back" programs, enabling card users to get a discount on almost everything they buy. Credit cards are also great in an emergency—they make it easy to lay your hands on some quick cash and provide a convenient way to make unexpected purchases, although it's always a good idea to have emergency cash reserves.

However, the truth is that if you can't pay cash to make a purchase, you can't afford to make the purchase. Nobody likes to hear this, but it's the bottom line when it comes to credit cards. Far too often, people who want to buy things that they can’t actually afford use credit cards as a financial crutch. Unfortunately, being able to make the payment isn't the same as being able to afford the purchase.

Whether you shop online, by telephone or by mail, a credit card can make buying many things much easier; but when you use a credit card, it’s important to keep track of your spending. Incidental and impulse purchases add up, and each one you make with a credit card is a separate loan. When the bill comes, you have to pay what you owe. Owing more than you can afford to repay can damage your credit rating.

Keeping good records can prevent a lot of headaches, especially if there are inaccuracies on your monthly statement. If you notice a problem, promptly report it to the company that issued the card. Usually the instructions for disputing a charge are on your monthly statement. Get in the habit of keeping copies and printouts, with details about the transaction, if you order by mail, by telephone or online.

These details should include the company’s name, address and telephone number; the date of your order; a copy of the order form you sent to the company or a list of the stock codes of the items ordered; the order confirmation code; the ad or catalog from which you ordered (if applicable); any applicable warranties and the return and refund policies.

Experts commonly suggest that a low, fixed-rate credit card is better than a low, variable-rate credit card. Card companies can raise their fixed-rate cards when interest rates go higher, but change is not automatic and they need to give you 15 days' notice. With a variable-rate card your rate can move regularly and without any prior notification.

Information like that—when a card company can raise your rate—is often buried in mail they send you. So always be careful: that may not be useless promotional/advertising junk you're throwing away from your credit card company's envelope. It may be important. For example, it may be a notification that your fantastic rate triples the first time you're late with a payment. The same advice applies not only when you're searching for a card, but after you get one—check out all that "junk" mail in your statement envelope before you toss it.

Be sure you are aware of your payment profile, because the way you plan to pay your bills is important when it comes to choosing a card. Paying every cent every month (instead of paying just a part of it) changes what you are shopping for.

Finally, if you have a credit card, take the following precautions:

• Never lend it to anyone.
• Never sign a blank charge slip. Draw lines through blank spaces on charge slips above the total so the amount can’t be changed.
• Never put your account number on the outside of an envelope or on a postcard.
• Always be cautious about disclosing your account number on the telephone unless you know the person you’re dealing with represents a reputable company.
• Always carry only the cards you anticipate using to prevent the possible loss or theft of all your cards or identification.
• Always report lost or stolen ATM and credit cards to the card issuers as soon as possible. Follow up with a letter that includes your account number, when you noticed the card was missing and when you first reported the loss.

Credit cards themselves don't put people in debt. After all, a credit card is just a tool, and tools are only as dangerous as the people who use them. To minimize the dangers to your financial health, choose your cards wisely, think twice before using them and, most importantly, don't carry a balance. If your credit card doesn't help you save money or provide a useful reward at no cost to you, don't use it. There are plenty of places where your credit card will come in handy—just be sure that you don't let the cost of this convenience get out of hand.