When You Should and Shouldn't Purchase with Plastic

Americans are up to their necks in debt. Bankruptcy has become so commonplace that in October of 2005, the government made it harder for people to file. You might blame our love of credit cards for the financial predicament we've gotten ourselves into. But that doesn't mean everyone should just stop using credit cards entirely... just that they should use them carefully. In fact, there are some very good reasons to use credit regularly.

When Should You Charge It?

In general, it's a good idea to have at least one credit card and to use it to establish a positive credit history. Your credit record will be a key factor in getting approved for a major loan, like a mortgage or auto financing. A good credit history can also help you rent a place if you're not ready to buy.

Sometimes it's actually better to make a purchase with your credit card than with cash or a check. That's because credit cards often come with a special insurance feature that covers you if your purchases are damaged or stolen, which is particularly useful when your new TV arrives from the store with a cracked screen. Check the terms of your card (you can read the application literature or call the customer service line) to see if you have this coverage. Your credit card issuer may also play intermediary if you ever have a dispute with a merchant over the delivery of the goods or services you've bought.

For the most part, credit cards are also considered safer and more convenient to use, especially if you're traveling. Why worry about losing your money or having a personal check rejected when you can carry a single piece of plastic that's accepted most places and can be canceled if lost or stolen? If you make purchases online, your credit card can provide protection against Internet fraud, too.

Avoid Common Credit Card Pitfalls

The biggest mistake people make with their credit cards is overusing them, which is easy to do whether you have one card or a whole wallet full of them. You can avoid a credit crunch by following certain guidelines you set for yourself. For example, you may decide to have only one card with a very manageable limit so that you can't overspend. Or you might decide to use your card only for emergencies or things you can't pay for in cash (an airline ticket bought by phone, a tow for your broken-down car, an auto rental, or an online purchase, for example).

Think twice before accepting retail store cards. Though they often come with a tempting merchandise discount, they also tend to charge higher interest rates than the kinds of credit cards that can be used anywhere. Why add another card to your wallet, especially one that has limited usefulness? Not only does it tempt you to spend, it also makes you that much more vulnerable to credit card fraud.

Also, unless you pay off your credit card balance every month without fail, avoid using plastic for everyday purchases like food, toiletries, lunch and snacks. It can become a habit, and small charges tend to add up quickly. Use cash for smaller daily purchases. If you don't have the cash for an impulse buy, put the decision off for a day and ask yourself if you really need the item. Remember, the single most important component of wise credit use is controlling your spending.