Plastic: we love it and hate it. It sure is easy to whip out the trusted credit card and worry about how to pay for it later. The average American household carries $15,788 in revolving debt at an interest rate of 14.48%, according to creditcards.com. Some days, you may be thinking of just cutting up those cards and closing the accounts - but hold on. There are some things in life that get to be very tricky if you don't have plastic in your wallet.
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- Getting a Loan
Let's pretend for a moment that you have no debt at all (if you are one of these people - congratulations!). You managed to keep clear of credit cards, which you thought was a smart move when you heard your friends and family complain about their bills. Then it came time for you to buy a car with a loan, or better yet, a mortgage for that house you love so much. No debt should make you the perfect candidate for the best loan rates, right? Think again: lenders look at your payment history as one of the most deciding factors when determining your creditworthiness, weighing it at 35% in their decision. Paying credit card bills on time is a smart way to build credit. (Learn how to improve your credit score in 5 Keys To Unlocking A Better Credit Score.)
- Booking a Hotel Room
You're taking a family road trip, and it's time to get some rest at a roadside motel. Since you try to avoid plastic, you carry cash to pay the lodging fee - so you're set, you think. Not so: hotels and motels typically require a credit card to check in, even if you're paying for your room with cash. This is to cover any charges you may incur before checking out, like long distance phone charges, damages or use of the mini bar. Having a credit card on file is how the hotel or motel owner ensures he'll be paid, so make sure you have plastic when you're traveling.
- Renting a Car
You're on a business trip, and decide you want to rent a car for a few days. Hopefully, you have a credit card, because you won't get very far without it. Although your daily charges aren't too high, imagine if you got into an accident and totaled that $20,000 vehicle. Insurance may not cover it, so your rental car company likes to have credit card on file, just in case.
- Getting a Career
You were offered that dream job that will launch your career - congratulations! You've handed over your references and given your employer permission to run a background check. Part of your background check will be running your credit - credit you'll have to build partly with use of a credit card. Your credit matters to an employer, especially if the job deals with money: it will show you're financially responsible. You need a dependable financial history in order to get a loan, and you'll also need it to build a career.
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The Bottom Line
Still hate credit cards? You're not alone. Twenty-nine percent of people report that they don't hold a credit card at all. So how do you keep the plastic without risking temptation and ruining your finances? If you carry debt on your credit card, take a look at how long it will take you to pay it off, and make a budget to get there. Use your credit card to build credit, but pay the balance off right away. Keep close tabs on your credit report, and check on it once a year to make sure all reports are accurate. Credit cards make many things, like these four, a lot easier. (For related reading, take a look at Credit Card Features You Shouldn't Use.)
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