This was taken from a comment that David Robarts left on here a while back in regards to credit cards:

“There was a brief period where we decided to carry a balance because we were uncertain of our cashflow when we moved, but we returned to paying off the balance every month after just a few months. Overall the rewards have been great. We’ve already applied a couple of hundred dollars in rewards to student loans and have accumulated about as much again. (One reason the rewards have been so great is that gas and groceries were earning 5%, but they just changed my account, so I might be shopping for a new card.) All-in-all credit cards are just like anything else in finances, a great tool if used with discipline but a possible trap if used unwisely.”

Congratulations David, you are what the credit card companies call a deadbeat.  I’m a deadbeat too.  I know many others, but not so many as I know cash cows.

The thing I really appreciate about this post is the wrinkle that David put in the credit card company’s algorithm by carrying a balance for a couple of months.  My guess is that if they didn’t give David a limit increase, there were people at the credit card company that wanted to.

Before I go in detail about credit cards remember that as much good as a credit card can do for you if you are not disciplined with your purchases a credit card will suck you dry.

Benefits of a limit increase:

• More spending power (it’s a good thing to have in case of serious emergency)
• A better credit score (part of your score is calculated by the amount you can use as it compares to the amount you actually use, the greater space between used and available, the better your credit will be)
• You may be able to ask for additional perks.

Problems with a limit increase:

• Credit card companies don’t give them to you because they like you, the purpose of a limit increase is for you to run up your balance.
• Lots of people do run up their balance, when my limit went from $500 to $1000 to $3500 in 6 months, I went out and bought lots of things, that card was at $2400 before the minimum payments looked too high for me to handle.  That’s when I turned my finances around.  It’s not a crazy huge number, but everyone has a point where debt is uncomfortable, and that was my point.

David mentioned rewards programs too.  Rewards credit cards are great.  They provide an even greater temptation to spend wildly though, since you’re “earning points.”  The credit union I work for has a great rewards card, and it uses a typical $1 per point system, so every dollar you spend earns you a point.  The cash value of a point we figured out is actually somewhere between $0.02 and $0.25 depending on what you redeem your points for.  So $200 in spending gets you a $50 giftcard somewhere else.  We do have the occasional member who’s like, “I’m going for the new truck!” and spends wildly on his card, runs up the balance, and then gets mad that he’s still 100,000 points away.  For the big prizes, it would be cheaper just to take out a loan.