Credit cards have historically been used by consumers for their flexibility, instant gratification and protection from unexpected events.

Those benefits have of course come at a high price, as Americans and others have racked up huge debt loads which have weighed them down for years and made it difficult to do anything but live from paycheck to paycheck. This is true not only with low-income people, but for many with high incomes as well.

Although it’s always better to build up a cash moat in preparation for potential difficult economic times, many do use a credit card for that same purpose. That could get more costly in the years ahead as banks and other financial institutions scramble to find ways to deal with the regulatory climate which has made it harder for them to generate revenue and earnings from their credit card services.

So for those of us looking to save money and build wealth, we have to take a serious look at whether there is really a need to use credit cards in light of how costly they’re going to be going forward, and if it’s worth the high interest rates and debt incurred from them.

We know that higher interest rates will obviously cost us more, and when we pay more to pay off debt, we have less capital to save.

The question then becomes whether there are times when using a credit card is worth the extra cost and debt load.

Other than the situation mentioned above of having one available for emergency use, it’s doubtful whether using a credit card really helps us other than to satisfy our desire for instant gratification.

If we don’t have a cash fund built up to protect us, then it may make sense to have a credit card available for use until you’re able to build up personal cash reserves. There will be some fees associated with that for sure, and you may have to use it occasionally to keep it activated and worthwhile for the company issuing it, but just be sure to pay back the borrowed funds quickly before you get hit hard by interest rates.

Some financial advisers have recommended using a credit card to make certain types of high-end purchases in order to protect themselves from certain types of fraud.

I’m not that big of a fan of that, as if I’m going to make a big purchase, I’m going to do it from a trusted store and not from someone I’m not sure of.

Consumers shouldn’t go out and buy a big item primarily on low prices, unless those lower prices are offered by reputable and well-known companies. So the idea of using a credit card for large purchases in order to protect yourself from fraud loses the impetus of its argument when taking into account buying from a trusted store.

No matter what the circumstances, it’s still better to buy with cash or debit cards than going the credit route, as it leaves you in a stronger financial position and provides you with more money to invest with and build up your savings and wealth.

Tags: credit cards, saving strategies

This entry was posted on Monday, December 28th, 2009 at 7:00 am and is filed under tips. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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