Managing Credit Cards


Credit cards are a tricky form of credit to manage. Many consumers find themselves in a very bad place for having mismanaged these credit products and the trouble that ensues can be long-lasting and can have significant impacts on a family's future. Managing these products does require a bit of savvy and, in many cases, the best way to manage these accounts is to give them up altogether. There are other lending products on the market that can fill the same purpose without the hassles created by credit card companies and without the sometimes questionable practices of credit card lenders.

Credit cards are what's called "revolving credit". This essentially means that the consumer is presented with a credit limit?we'll say $5,000 for the sake of explanation?and that the entire balance of that credit need not be used at once. For many consumers, these arrangements are entered into with the best of intensions. "Only for emergencies" and "only what I can pay at the end of the month" are commonly-heard phrases from new credit card customers. Oftentimes, however, the flaws in this model of lending end up overtaking the consumer's good intentions and creating all manner of trouble.

The revolving credit model employed by credit cards means that the consumer is, for all practical purposes, left with $5,000 sitting in their wallet, waiting to be spent. Most consumers will find this has the effect of "burning a hole in their pocket" at one point or another. While the credit card may have been intended for emergency use only or some other sensible purpose, it most often ends up being maxed out with one small charge after another. Eventually, the card is essentially useless, a high-interest debt that festers but offers no more convenience than it ever did, and the consumer finds that they have drowned themselves in debt a teaspoon at a time.

Credit cards or, rather, the companies that issue them, become notoriously mischievous at this point. Oftentimes, they will freeze the credit card, essentially making it worthless. They may also impose random and arbitrary charges and penalties which amount to punishment for having used their product. In the worst cases, they may close the account and demand payment in full immediately. These practices are widespread enough that congress is considering taking action to prevent these practices in the future. One must wonder if such a product is worthy of being taken up again, even if it is resurrected in a more honest form.

Where credit cards have failed, payday lenders have moved in to fill the gap. Given the new consumer disposition toward saving more and spending a great deal less, the payday lending model finds itself more at home than did the credit card lending model. These loans are not designed to be hanging around a consumer's neck for long and, for those who find themselves in trouble with other forms of quick consumer debt, they offer a host of advantages.

First and foremost, credit cards are designed to allow the consumer to keep ratcheting up their balance over a long period of time. Their credit limits are calculated by the company's assessment of how much debt the consumer can carry. Payday loans are superior in both regards. For starters, they are designed to be made within the limits of what the consumer can repay on their next payday. They are also calculated based upon how much the consumer can repay in full, not how many partial payments they can make over a series of years. Because the loan has a sensible limit, it prevents the consumer from swimming in waters over their head.

Payday loans also require no credit check to obtain, a primary difference with credit cards. A credit card is essentially designed as a way to keep a consumer trapped within the credit system. Given how that system has turned out of late, it seems a rather poor place in which a consumer might choose to invest their trust. Payday loans exist on a good-faith model and, because they're not overwritten in terms of the principal offered, the companies don't have to rely on the standard credit system to determine worthiness.

Credit cards have been around for a long time and will likely endure. However, as consumers have begun to appreciate the more traditional assessments of how money is well-handled, payday lenders are likely to take away some business from credit card companies. Payday loans are not based in a philosophy of living beyond one's means nor are they designed to trap the consumer in an inescapable mire of debt and misery. Payday lending products are designed to provide a service that a consumer can use over and over without taking on the sort of risk they endure with a credit card company's offerings.