Is It Ok to Have A Credit Card?

Article by R. Joseph Ritter, Jr. CFP® EA

The answer depends on the situation and purpose. A credit card is no different than taking out a student loan, vehicle loan or home mortgage.  It is an agreement between you and a bank where the bank agrees to extend credit to you, and you agree to pay them back.  Unfortunately, credit cards are not looked at by most people as a form of debt but rather as an extension of their checking account.  One reason for this is that there is no personal interaction with the credit card company as there is when you meet with a loan officer for your vehicle, student or home loan.  Another reason is that the plastic card is as common with a checking account as it is with a credit account.

The question really should be, “Do I need to borrow money to make purchases?” If you looked at each credit card transaction in the grocery or department store or online purchases as sitting down with a loan officer, you may reconsider charging the purchase.

A common reason for having a credit card is that it has become a standard method of demonstrating creditworthiness and building your credit score.  Credit card companies will much more quickly extend credit to you than the local branch of your bank. As much of a benefit as this may seem to be, the credit card has also become the nemesis of the American people because it is too easy to obtain, charge up large balances, and then have difficulty paying it back.

The reality is that vehicle loans and home mortgages can be manually underwritten based on your Income Tax Returns, written verification of landlords for lease payments you made, and other sources of information that document your ability to pay and handle credit.

If you need a credit card because you do not have enough money each month to make necessary purchases, which is another common reason for having a credit card, then your overall financial situation is due for evaluation to determine whether credit card debt can be avoided.  Unfortunately, relying on a credit card to get by each month presents a dangerous financial situation because at some point the balance will be more than you can afford to pay back.

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