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When to Use a Credit Card

An important thing to remember about credit cards is that just because you have them, you don't have to use them to rack up a lot of debt for stuff you don't need. As gratifying as it might be to throw a bunch of bags onto the back seat as you leave the mall, your spending will catch up with you at the end of the billing period. And you know what they say about payback.

Knowing When to Use Your Credit Card

Say you're driving four hours to visit an old college buddy for the weekend. You're about two thirds of the way there when you notice your car's temperature gauge is on the rise. The needle keeps nosing up, and pretty soon you notice little wisps of steam coming from under the hood. You pull over; you know when you're beat. Somebody stops and gives you the name of a gas station down the road that does repairs. He says he'll stop by the station and have a tow truck sent up for you. Great, you say, because by now your car won't even start.

Dollars and Cents

Credit cards are necessary if you run into an unexpected emergency expense, so don't leave home without one if you're traveling.

It doesn't take the mechanic long to figure out that there's a hole in your radiator the size of Iowa, and when he starts muttering about hoses, you see the dollar signs mounting up in your mind. You finally get the bill for the tow and the repairs, only to learn that you're out $247.93. You have just $60 in your wallet, and you're still hoping to get to your friend's house for the weekend. This definitely is a situation in which you should use your credit card and be grateful that you have it. Emergencies such as this are when credit cards are at their finest.

They're great when you order something from a catalog or go shopping online. It's also good to have a card number when you call to make a hotel reservation and the front desk person says, “Would you like to secure that with your credit card?” Ditto for renting a car or reserving a plane ticket.

Sometimes Cash Is King

There are times and places, though, where you should forget you even have a credit card. Many financial advisers will tell you to never use a credit card to buy anything that depreciates. This includes clothing, shoes, gas, meals in restaurants, groceries, and so on.

That's good advice, but it's pretty tough to follow. Of course, there are exceptions to this rule. For example, what if you're on vacation and you see a cool pair of sandals that you just love. And they're on sale! If you pay cash for the sandals, however, you won't have enough cash for the rest of the vacation, so you buy the sandals and put the charge on your credit card. That's fine, as long as you'll be able to pay off the charge when the bill comes in.

Generally, however, there is a rule that should be followed carefully: don't use a credit card to pay for something that will be gone when the bill comes.

Excerpted from The Complete Idiot's Guide to Personal Finance in your 20s and 30s © 2005 by Susan Shelly and Sarah Young Fisher. All rights reserved including the right of reproduction in whole or in part in any form. Used by arrangement with Alpha Books, a member of Penguin Group (USA) Inc.

To order this book visit the Idiot's Guide web site or call 1-800-253-6476.


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