The Good, Bad, and Ugly About Credit Cards

Credit cards can be a gift when used wisely or an expensive curse if used improperly. Here’s how to best utilize your card and build your credit history.

The Good:

  • Credit cards make travel more convenient. While you can use a debit card for car rentals and hotels, these companies will put a hold on your bank account for the total amount of the charge. If you don’t have a credit card, these funds will be temporarily taken directly from your account. Therefore, having at least $1,000 available in credit is a smart move.
  • You can build credit history faster by having a credit card. Paying rent, utilities, and other living expenses on time helps, but these payments will not get reported to a credit agency unless you fail to pay them. Financial discipline is demonstrated when you show how much you could have spent versus how much you actually charged. Try to keep your balance under 50% (30% is better) of your available line of credit to improve your FICO score.
  • Credit cards can bail you out in an emergency. Most financial advisors recommend an emergency reserve of 3-6 months of living expenses, but in today’s economy, the average person won’t get there. You should maintain a minimum reserve of $1,000 or at least a full paycheck in your savings in addition to an emergency line of credit.
  • Credit cards that offer rewards points are the ultimate perk. You win the credit game when you charge and pay off your entire credit card balance each month. Get ready to stay in nice hotels, get free airline tickets, and a host of other benefits at no cost—you also won’t pay finance charges.

The Bad, the Ugly:

Credit cards are tempting. They allow you to indulge in your desires. Studies show that on average people will spend 30% more than planned when using credit cards. You will pay for your lack of discipline with low FICO scores and higher interest on car and home loans.

Credit cards are expensive. In fact, if you make only the minimum payment, you will pay about three times the purchase price. So, get a plan to get out of debt now. Pay more than the minimum balance when possible. If you have multiple cards, do the same, but start with the card with the lowest balance. Pay the minimum on all other cards until the card with the lowest balance is paid off. Then you can increase payments on the other cards one by one. Continue to utilize this process for each card. It’s a fool-proof plan that will fast track you out of consumer debt in no time.

You don’t have to fear credit cards; just be smart and refuse to charge things you don’t need or can’t pay for in full when the bill comes. Use rather than abuse this financial tool to improve the quality of your life.

Deborah Smith Pegues is a Certified Public Accountant, Certified Leadership Coach, and bestselling author of 16 books including 30 Days to Taming Your Finances. Read more about her at

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A Tribute to My Dad…

Far from being perfect, my dad left a legacy of astute financial management. He cautioned against having “yearnings” that exceeded your “earnings”. He probably never made more than $100 per week when we were growing up but he stretched that money to meet all the needs (food, clothing, transportation, and housing) of our 9-member household. There was no lack. The food budget was $25/wk and there was no such thing as going over because $25 was all he gave my mom or me to shop with (I sometimes did the shopping as my mom was often sick and couldn’t walk.) I learned then the money management skills that I still use today–and one overriding principle: you can always live off less money. Further, I learned that if you decided to lend someone some money, they must sign a PROMISSORY NOTE (he required COLLATERAL and a PROMISSORY NOTE!). You didn’t want to owe him; he was coming for his $$$ and your credit was FOREVER ruined with him. Even today, when I caution, “Don’t forget that I’m Rube Smith’s daughter” everyone knows what that means… no-nonsense when it comes to my money. Oddly, as Executor of his Will, I discovered in his papers that he balanced his frugality with a big dose of generosity to struggling churches and to people who were incarcerated.

Not much of a nurturer, I never heard him say “I love you” until he was on his death bed; I was so shocked I made a joke of it. He was proud of me but never told me so; others later told me he always spoke of my accomplishments. He was especially impressed that I was the Chief Financial Officer for now Presiding Bishop Charles Blake (West Angeles Church) whom the people in the Southern churches called “The BIG Bishop”. An eternal chauvinist, he couldn’t believe Bishop Blake gave such a responsible job to a woman. Once he asked, “You mean they couldn’t find ONE deacon around there to do that job???” I didn’t even try to explain that building a $66 million Cathedral, negotiating the $33 million bank financing, and running a multi-million dollar operating budget were much more complicated than just counting money (which I never did–still ain’t good at actually counting).

Rest in peace, Daddy. I know that you and Mom are both in Heaven so I’m convinced you are finally seeing eye to eye. I knew you two loved each other and that’s why neither of you ever re-married, choosing rather to remain “separated” for over 40 years. By the way, thanks for the financial windfall you left us all when you passed away. I can’t believe you saved that much money! You certainly practiced what you preached. I honor you for that!