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FOOL'S EYE VIEW
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That old share market is looking a tad depressing today and all the good advice in the world has been published on this site in recent weeks and months. There'll no doubt be more of it to come and so today I'm taking a break from the market and talking about credit cards. Join me on a journey into – aha, you thought I was going to say 'Debt', didn't you? – sensible borrowing. We've had a bit of a downer on credit cards here at the Fool ever since we first laid finger to mouse. While we probably haven't used any of the following phrases exactly, we have certainly come pretty close at times: "Spawn of the devil", "Black-hearted instruments of the Evil One", "Adulterous harlots of hell, may they all fry in the eternal fires they so richly deserve. FR-Y-Y-Y-Y!" and so on and so forth. No, we haven't often given credit cards a good press. But hang on. Maybe there's more to it than that. Sure, carrying high rate credit card debt for a long period is a killer, which can effectively negate all your other efforts at saving and investing, but credit cards can be useful. The key, as ever, is to know what you're paying for and why. Let's move away from credit cards for a moment and talk more generally about borrowing. Pretty well all of us have to borrow money at some point in our lives: for a mortgage, student loan, cash flow crisis, and any other number of reasons. In this life, you don't get something for nothing and so we have to pay for the privilege of borrowing money. (This is simple stuff, hey?) Mortgages are cheapest, then personal loans, then credit cards and hire purchase deals. So what are we actually paying for? We're paying for the convenience of it all. A mortgage is a safe long-term loan and so is cheapest, but as loans become shorter term and riskier for the lending company, so they become more expensive, but you're paying for the convenience. Which brings us to credit cards. These things are not inherently evil. They offer a service: instant credit up to a pre-agreed limit. Why, some of them even give you as much as 56 days to pay off a loan before incurring any charges. Others give you welcome freebies such as air miles or loyalty points with every purchase. One American friend of mine flies free whenever he goes on holiday because he runs so many company purchases through his own credit card and racks up frequent flyer miles by doing so. What my friend has to make sure is that when he spends $10,000 on his credit card for his company he gets reimbursed pretty quickly. If he doesn't he risks carrying interest payments on that debt which will eliminate all the benefits that his little – did I say "scam"? – dodge brings him. That's the crux: use credit cards sensibly and treat them with care. Use their interest-free credit facility by all means. Use their interest-paying credit facility if you have to, but make sure you're reviewing that debt within a couple of months. It can make sense to pay for the convenience of borrowing money on your credit card for just a couple of months, but long-term you're much better off shifting it into a lower rate personal loan. Above all, don't get lured into carrying a four-figure balance from month to month. Here are some useful pointers for the Foolish use of credit cards: Naturally, the precise combination of interest rates, interest-free periods and benefits is different for every card and we all have different needs and wants. You'll have to make your own mind up as to what you want, but above all, treat these little beasties with respect and, hey punk, control your card before IT controls YOU! For more information on debt and credit cards, stop by our Foolish Get out of Debt Centre. You'll find bags of stuff there, including a link to Money Supermarket, where you can compare credit cards and see how much you'll save, put in the criteria you want, suss out what is best for you and even apply for some of the cards online. It's a nifty service, take a look.