Money Monday: the credit card conundrum

The holiday season might just as well be called “spending season.”  No one wants to sit at home while their friends are out at holiday parties and shopping.  While indulging in these activities, it is easy to whip out your credit card and charge everything.  After all, you can pay for it in the New Year, right? Not so fast.  Before you put everything from gingerbread lattes to a new IPod for your sister on those credit cards, take a step back to think.  If you think of your credit card more as a debit card, you may be less likely to spend unnecessarily.

Most people today have credit cards.  Debit cards, which are directly linked to your bank account, are more prone to identity theft.  So, credit cards can be a convenient and safer way to pay for many things.  In addition, having available credit through a credit card helps to build your credit history; this increases your credit score and shows financial responsibility.  However, before you use “plastic” to pay for everything, ask yourself a couple of questions:

1)     Do I really need this?; and

2)     Do I have cash in my bank account right now to pay for this?

If the answer to either of these questions is “no,” then stop; do not make the purchase.  Aim to pay off your credit card balances in full every month to avoid paying high interest rates.  Credit cards should not be considered “free money.”  You WILL have to pay the money back and you WILL pay high interest rates.

If you already carry some credit card balances, make a plan to pay them off and stick to it.  Always make at least the minimum payments each month to avoid drastically affecting your credit score.  This could affect your ability to borrow.  After paying the minimums, pay off the card with the highest rate first and stop using the card.  You should not close the account either because this could also negatively affect your credit score.  Try to use no more than two credit cards- one for personal use and one for business use- and never max them out.

Before you buy that new IPod for your sister or that $6 latte, remember that your future financial stability depends upon your timely and full payments on the credit cards you are using to buy those things.

If you find yourself in need of help managing your credit cards or would like information regarding a new credit card, take a look at these sites: www.nfcc.org and www.bankrate.com

Also be sure to check out the summer issue of Mouth, solely focused on money! Read these articles on how to budget for both the single and the married dental student.

What has worked for you to curtail unnecessary spending?

What topics would you like to see discussed in upcoming segments of Money Monday?

~Megan Hille, Esq., Pesavento & Pesavento, Ltd.

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Comments (4)

  1. Yesle Kim

    I keep filing latte’s as “emergency purchases” because we have so many exams in December and I need a pick-me-up. These really start piling up though!

    Reply
  2. Carolyn Norton

    Thanks for these great tips on credit card spending! I would love to see a post on loan consolidation. I am a 3rd year in dental school, but once I graduate I’m not sure what happens… especially since I have loans from a few different places that started during undergrad. I would love some quick tips on how loan consolidation works and when/how to do it. Thanks for your blog post!

    Reply

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