Personal finance bloggers vary widely in their opinions of credit cards. Some see them as useful tools, particularly when the lender gives you a kickback on your purchases. Others see them as tools, all right: of the Devil!  NCN, for example, thinks of credit cards as “like a pet rattlesnake.” And he may have something there. The number of people blogging about their efforts to get out from under debt—most of it credit-card debt—speaks loud and clear about the danger of easy credit and the anguish it causes. So does the enormous popularity of sites developed by debt-laden folks whose goal is to achieve financial health. Among these, The Simple Dollar stands out, with (when last heard from) some 22,000 subscribers, along with others such as Paid Twice, whose ad content suggests a very successful site, and Get Rich Slowly, with 100 readers a day.

My feelings about credit cards are mixed, as they are about debt in general. Unless you have a ton of money, debt is bad; but the opposite is true if you have enough wealth to use debt as a leveraging tool. Similarly, if you lack the assets and self-discipline to avoid over-charging, a credit card is a dangerous and harmful device. But if you can pay in full each month, it’s a useful tool—some would even say indispensable. Just try booking an airline or hotel reservation with cash!

Debt, however, is corrosive, and credit cards, with their usurious interest rates, are especially corrosive. The immediate cause for my exiting a 25-year-long marriage to a man whose income put him in the top 3 percent of U.S. earners was debt. Generally I floated along in a state of oblivion, a complacent trophy wife. But one day I came to and recognized that we didn’t really own any of our possessions. Everything we “owned”—our cars, the furniture, even the clothes on our backs—was rented from some bank. We owed tens of thousands of dollars on credit cards, and that was only a small part of the three-quarters-of-a-million-dollar debt load we carried.

Not knowing any better when I was first sprung into onliness, I continued to charge things on various credit cards. In my early budgeting attempts, I would justify charging $20 or $40 or $100 more than I had in checking by figuring I would pay for it out of the next paycheck.

But...uh, waitaminit! This meant that the following month’s budget would come up $20 or $40 or $100 short! Every time I overcharged, I shorted myself in the next month. Over time, this would guarantee that sooner or later I would have to run a tab on the cards just to make ends meet. None too soon, I realized I was headed for modern life’s answer to the La Brea Tar Pits.

I paid off a bloated Visa bill in full and then spent the next two months eating beans. Determined never to live on the cuff again, I cut up all but one of the cards, dropped it into a file folder, and left it there for several years.

The first and best benefit this ascetic new practice revealed was that when you pay your bills in full, on time, your dollars go a lot further. If you’re paying 21% interest to a credit card, each dollar you spend is actually worth 79 cents. When you’re not paying credit card debt, your income buys more! One day I looked around my house and realized I had nicer furniture than when I was married—and every stick of it was paid for.

After a while, I grew tired of writing checks for everything. Costco, purveyer of the cheapest gasoline in town, began demanding that all gas purchases be made with an American Express card, which once a year forks over cash back to the consumer. It occurred to me that if I was very careful never to charge more than my checking account held, putting all my daily living and business expenses on the card would be to my advantage: it created an accurate paper trail, it simplified paying, it gave me a little “float” after the first-of-the-month paycheck (the bill isn’t due until the ninth), and the annual kickback would be as good as an income tax refund. And it would make my purse one heckuva lot lighter! I had to pay for groceries and household items anyway—what difference did it make whether I paid in cash, by check, or by card, as long as I never overdrew my checking account?

I set up Quicken so it would track my current charges against the current amount in my checking account and then made it a point to enter charges at least once a week. This had the same effect as debiting checks from the account: a glance at the bottom line told me how much remained in the checking account at any given time.

It works! Since then I have never paid a finance charge to a credit card company, even though I budget over $1,000 a month for living expenses, all of which go on the AMEX card. At the moment, American Express owes me $488.32 in cash back, an amount I expect will come to about $500 by the time the fiscal year closes. That five hundred bucks goes straight into my Roth IRA.

The tricks are 1) to have the money in hand and budgeted to pay for the charge card before you run up a bill, and 2) to have a system in Excel or in a program like Quicken that allows you to see, easily, how much you’ve charged vs. how much spending money you have available.

Am I dancing with a rattlesnake? No doubt. But I think the little guy has been defanged.

Credit cards: good, evil, or indifferent? Please share your point of view!

credit cards, debt, budgeting