Plastic 101

Dan Robards/Staff Financial Writer

Americans love it.’ If you don’t have it, you want it.’ If you have it, you try your best not to lose it.’ ‘

That’s right, we’re talking about convenience.’ When it comes to consumer spending, convenience comes in a thin, plastic 2×3 inch rectangle commonly known as the credit card.’ This small, flexible, inanimate object has become one of the many scapegoats for the collapse of the great American economy.’

President Obama recently signed off on new credit card laws that will start to take effect in Febuary 2010. Credit card companies have a reputation of heavily targeting young college kids who haven’t owned a credit card before.

These laws are intended to make credit cards more user friendly and easier for consumers to understand.’ And since it will be harder for some people to get credit, credit card companies will be reaching out to more people to find someone who can, and will, sign up for a credit card.

One of the changes include a 45 day notice before credit card companies increase your interest rates as opposed to the 15 days currently required by law.’ The biggest change in the new law that will be felt by college students is the provision saying that anyone under the age of 21 can’t prove an independent means of income or provide the signature of a co-signer aged 21 or older won’t get approved for credit cards.’ This is to protect young people who don’t know much about credit cards from predatory lending on the credit card company’s behalf.

That leaves many of us asking the question what’s the big deal about credit cards? And what makes them so bad?’ Like most other things, credit cards aren’t inherently bad, but how people use them can make them so.’ So what are the pros and cons of owning a credit card?

Many of us have been roped in by the rewards programs credit card companies offer.’ But besides the opportunity to earn a vacation in Hawaii, including dinner-for-two for you and Miss America, let’s take a look at some of the other reasons why a college student should have a credit card.’ ‘

I’m sure we all have our own vision of the American dream, and for many of us, being a homeowner fits somewhere in that dream.’ But it’s hard to buy a house with no credit.’ ‘

So how does someone with no credit get some?’ Using a credit card responsibly is a great way to build up your credit.’ Once you’ve established you’re mature enough to make a payment, you’re in.’ From there, enjoy the endless wonders of paying bills for the rest of your life.

Credit cards are also reliable in a pinch.’ As long as you haven’t maxed your credit with Nike basketball shoes, Louis Vuitton handbags, or Dolce and Gabanna sunglasses, a credit card can bail you out in situations where you need money now.

Guys have been in this situation.’ Ever wanted to take a lovely young lady out to dinner, but you spent all your money paying bills?’ A quick solution is a simple swipe of the card, and all your dreams can come true.’ ‘

And as for the ladies – I know you like to be considered the most thoughtful among the sexes, but memory slips even the best of us sometimes.’ Maybe you forgot a birthday or anniversary with your significant other and you need to stop and pick something up before you come home from work, but you don’t get paid until next week.’ Swipe the card.

Sometimes it’s just safer to use your credit card.’ ‘ Maybe you have the money to spend, but you’re not the size of an NFL lineman or a black belt in Brazillian jiu jitsu to fend off would-be burglars.’ If someone steals your cash, good luck getting it back.’ However, if someone steals your credit card, you can alert proper authorities and freeze your account, leaving criminals with a free plastic pass to jail should they ever try to use your card.

But for every reason to own a credit card, there is a reason not to.’ Using credit cards creates a devaluation of money.’ When we swipe the card to pay a $200 bill as opposed to counting out each 20 and five, we become desensitized to how much we’re really spending.’ Dave Ramsey, a financial author and radio host, says that when people swipe their cards they spend 12-18 percent more than people who count out cash.

On top of the extra spending at the counter, you could be paying more than you bargained for if you don’t pay your bills on time.’ You should view every credit card transaction as a mini-loan.’ Each credit card carries different interest rates based on the cardholder’s credit score.’ Most credit card companies won’t charge you interest if you pay off the balance in 30 days.’ But if you fail to pay off the full balance, they begin charging you interest.’ The longer you leave your balance unpaid, the more inordinate the amount of accumulated interest becomes.’ And if you let these interest charges pile up or quit paying your bill, you could be eating Ramen noodles for a long time to come.’ ‘

Having massive amounts of credit card debt is the worst possible outcome.’ Once you fall into debt, credit card companies pile on the interest and late fees, which makes the task of becoming debt-free very daunting.’

Moral of the story: pay your bills on time, and if you can’t do that, don’t get a credit card.

So- is it possible for one to own a credit card and be financially responsible?’

The answer is a conditional ‘yes.’ ‘ People need to be more honest with themselves about who they really are, and what they’re capable of.’ We need to be more accountable for our actions, which means reading the agreement before you sign it so you know what you’re getting into.’ ‘

And if you don’t understand, ask someone.’ Most of us have plenty of family and friends who own credit cards and can advise us about the dos and don’ts from first-hand experience.’ ‘

If you choose to use a credit card, be smart and use it wisely.’ Just remember: credit cards won’t spend you into an unmanageable debt -‘ you will.