The following guest post is from Tisha Tolar.  Tisha is a freelance writer providing content for CreditCardAssist.com, where she regularly writes about credit cards, rewards programs and general consumer finance issues.

Credit cards certainly are not what they used to be. There is so much competition in the industry it seems each company needs to implement a new concept each week to keep account holders happy. When you applied for credit cards back in the day, basically you received a credit limit and a piece of plastic, along with monthly statements. Now, it’s a whole different story.

Too Much At Once

From cash back rewards cards to bonus miles to free airline miles, credit cards have come a long way and not always for the positive. While credit card spending has hit record highs and consumer debt is even higher, credit card responsibility is essential to maintain great credit scores and good money management skills. It becomes all the more difficult to stay on top of your financials when terms keep changing, interest rates keep rising, and more fees and penalties are getting tacked on to your account balance each month.

What’s Up With Insurance?

Adding to the frustrations are the additional programs your credit cards want you to sign up and pay for, such as disability and life insurance. Most people will be offered the insurance option during the application process. If you decline at that time, chances are good that you will be solicited by phone and mail in the near future. The credit card company will likely present the sales pitch that in the event of your death, disability, or serious illness all of your credit card payments will be taken care of. Your family will not have to be concerned with your credit card debts during that tragic time. You can obtain this additional insurance by paying a small percentage of your monthly balance.

The Things You Don’t Need

What the credit card company does not tell you is what really happens should you fall ill or die. In the event of your untimely demise, only your minimum credit card payments are covered by the insurance. Your entire balance is not paid off in a lump sum, which means that finance charges still accumulate on to your balance. The credit card company is essentially selling you a policy that protects them, and not you.

If you have already fallen for the pitch to buy insurance, you will already know that it becomes difficult to cancel the policies. You end up having to deal with the insurance company directly and the credit card company will not be offering you assistance. On some occasions, simply contacting the insurance provider becomes an impossible task. The credit card companies can be particularly forceful and oftentimes customers end up signing up for coverage without adequate knowledge. Companies will also offer free introductory periods that you will find hard to cancel.

Your best bet is to read everything in detail before signing up for anything. Do not be afraid to say no when asked or pushed into a policy. If you are interested in insurance policies that will truly take care of your debts and your loved ones, speak with a qualified insurance agent and find a policy that will work for you and most likely cost you less money.

Credit cards have a bit of an identity crisis in our society.  In some circles they are vilified, along with the companies that offer them.  Others see them as a useful tool for financing short-term loans to fund projects or small emergencies.  I personally fall somewhere in the middle.

Credit Card Can Be Useful Tools

Grace periods allow consumers to float money.  As long as you submit payment in full well in advance of the due date it is possible to borrow money without interest on credit cards for a short time. However, this can be a dangerous game.  One missed payment can raise your interest rate, cause late fees to be assessed, and cause irreparable harm to your credit file for the next several years.

Credit cards offer reward and rebate programs. I doubt anyone has ever become rich off credit card awards, but if you run purchases you would make otherwise through a card with cash back bonus awards it can really add up!  I used to work with someone who ran all utilities, gasoline purchases and recurring subscriptions through their Discover Card and earned a couple hundred dollars a year in cash back awards.  That’s a pretty nice Christmas bonus.

Credit cards offer added security over carrying cash.  We have been diligently saving for Christmas shopping all year long, and managed to accumulate enough to enjoy the holiday season (and give a little away as well).  Rather than cashing out our Christmas fund and carrying several hundred dollars in cash around the stores, we simply charged it and will pay off the bill from our savings account when it arrives next month.

Potential Dangers of Credit Cards

People are often introduced to credit cards at a young age. Unfortunately, credit card companies have made a habit of marketing to younger and younger ages over time.  The problem with young people owning a credit card is that they rarely have enough income to cover the available credit, and if they run up the card they get sucked into the minimum payment trap for life.

When using credit cards, there is no emotional separation from money. Do you remember the last time you paid for something with a $100 bill?  I do.  It was painful.  As Uncle Benjamin left my hand I could feel a twinge of pain that I wouldn’t have felt swiping plastic.  It is this emotional pain that keeps us grounded, fiscally.

Banks offer overly generous credit lines.  Ever noticed how credit card companies increase your credit line if you approach being maxed out.  And if you pay off your card, what do they do?  Increase your credit line.  It isn’t uncommon for twenty year-olds to have $10,000 credit limits on $20,000 annual incomes.  That just doesn’t pass the common sense test.

Credit cards increase the chance of identity theft.  Credit card numbers floating around are tied to your social security number and credit profile in a database maintained at every institution you do business with, and at all the large credit reporting agencies.  Scary, isn’t it?  Protect your credit card number and the physical card itself by being vigilant with receipts, statements and online purchases.  Review statements for any unusual activity, and keep your bank’s contact information handy in case you lose your card.

If you are like me, and went a little overboard with credit cards at an early age, you might want to consider a low-interest consolidation loan to group your debt at a lower rate.  If you go this route, cancel all but one credit card, and consider lowering the credit line down to a manageable level.  If you don’t, you could wind up with a consolidation loan and more credit card debt.

I have been a member of the Dave Ramsey Total Money Makeover forums for over two years now, and in that time I’ve made several virtual friends, and read many inspiring stories of families who clawed their way out of debt.  I recently read a comment from a new member working their way through baby step two–the dreaded debt snowball.  One of the things the new member was struggling with was resisting the temptation to make more than the minimum payment on all her debt accounts.

Generally Speaking, More is Better

When it comes to credit card minimum payments, most financial experts agree more is better.  In fact, some go as far as suggesting that cardholders try to make double the minimum payment to lessen the time they are in debt, and reduce the amount of interest they are charged.  Financially, this makes perfect sense. However, by spreading out your available dollars across several cards you are effectively only reducing each card’s balance a small amount.

Pay More Only On One Card

The main idea behind the debt snowball is paying only the minimum payments on ALL of your debts, and throwing any additional money at the smallest debt.  For example, if you owed $5,000 across five credit cards, your total minimum payments might be around $100 per month ($20 per card).  Now let’s assume you are living frugal, and/or earning extra money, and can apply $500 towards debt repayment.  If you split that amount equally across all five accounts you would only reduce each card’s balance by $100 per month (minus accrued interest).

Under the debt snowball plan minimum payments would be made on all but the card with the lowest balance ($80), and the remaining $420 would be paid towards that smallest card.  Depending on the size of the starting balance, $420 can bring a credit card balance to zero fairly quickly.  When that card is paid off you will only be making three $20 minimum payments and the remaining $440 snowball payment will be applied to the next smallest card, and so on.

The idea of paying more than the minimum payment has been reinforced since the early days of revolving charge accounts, and it is an effective way to pay off debt faster.  However, if you have several debt accounts it might make sense to focus your efforts on paying one debt at a time, while maintaining a current status on other accounts by only making the minimum payments.

If you can only make the bare minimum payments on your credit cards that can be incredibly expensive over time. But using a weak credit card can be even more costly. Research and compare some 0% APR credit cards that will go a long way in helping you to save on those outrageously expensive finance charges. Also, if you like to travel but are having a hard time saving money on your vacations, you should consider some of the better frequent flyer credit cards that you can easily find online.

I recently did something I haven’t done in years–I applied for a credit card.  Now that I am wise to the potential pitfalls of credit card use, I decided it was time to try to recoup some of that money I’ve been pouring down the gas tank.  A credit card that offers rebates for gasoline purchases seemed like the best idea, and I was off to compare various options based on the following three requirements:

• The new card must have a low annual percentage rate.  I am dedicating this card to gasoline purchases and utility payments only, so there is little chance I will roll over a balance from month to month.  However, I’ll try to get a competitive rate just in case.
• I refuse to pay annual fees.  Not much room to negotiate here.  There are simply too many options available to spend $35 plus on a fee just for the privilege of carrying a card in my wallet.
• Extra cashback earnings on gasoline, and other regular purchases.  One of the downsides to using a credit card is that studies have shown we typically spend more money with plastic.  Since I am limiting myself to required purchases only (gasoline, utility payments, etc.), and those don’t have much variability, I feel confident I won’t be spending any additional money running those charges through the credit card and paying them off each month.  In the process, it would be nice to earn a little extra money back for those types of purchases.

And the Winner Is…

The Discover Open Road Card.  The open Road card had everything I needed in a rebate credit card, and offered a nice 5% bonus on gasoline, travel and grocery purchases, along with a 1% bonus on all other types of charges.  What will we do with the cash back money?  We will probably drop it in one of our targeted savings accounts like the vacation fund, or maybe even the Christmas fund.  I’ll report back after a month or two to let you know just how much cash rebate we rack up.

Apply for the Discover® Open Road Card today!  (link goes directly to application)

The last couple years have proven to be tough times to be a homeowner. Home values around the country have seen a decline, and many homeowners are now feeling the squeeze from signing up for adjustable rate mortgages.  Many homeowners are having a hard time coming up with mortgage payments, while meeting minimum payments for cars and credit cards.  Something has to give, and all-too-often it is the house that falls behind.

The Squeaky Wheel Gets the Oil

There are too many stories out there about homeowners who kept their credit cards current as they fell behind on their homes, ultimately leading to foreclosure.  Credit card collectors are notorious for their obnoxious, high-pressure techniques, and unfortunately they are also often the most successful.  I used to work in a call center, and I’ve seen these collection practices up close and personal.  Believe me, it wasn’t any more fun for me being on the other end of the line, but some people seem to enjoy abusing others over the telephone.  I was raised on the idea that you catch more flies with honey than with vinegar, but in the collections world this just isn’t true.  The best way to collect money on a credit card is to scare the cardholder into thinking they will be sued, or to pester them to the point that they finally pay just to get you out of their lives.

Shelter and Transportation Before Visa and Mastercard

The problem with paying credit card companies when you are in a financial bind is that with only so much money to spread around, something else is going to suffer.  I’m not advocating you neglect to pay a just debt, however I am advocating that you sit down with the pile of money you have to work with and put life necessities at the top.

I’m a fan of the Dave Ramsey radio show. I don’t agree with 100% of what he advises, but he is right on when it comes to this subject.  When he fields calls from people who are being bullied by credit card collectors he advises them to list out their monthly expenses beginning with life-sustaining expenditures first:

• Housing
• Food
• Lights
• Transportation

Notice credit cards weren’t part of that lineup.  If you have money left over after paying those four basic categories, then by all means make your credit card minimum payments.  If you don’t have anything left over, do not stress out about what Bank of America might do to your FICO score, or worry that Discover Card is going to garnish your wages.  If you receive a call from a nasty credit card collector, explain in a calm manner that you have budgted your bills for the month and unfortunately you are not able to make a payment this time.  When they start to scream and yell and call you names, simply put the phone down on the table and go about your business.  If you get emotional and yell back at them, they win.  Getting you upset is their objective, so don’t let them win!

When your financial situation improves make plans to catch up on outstanding bills, again putting credit cards last.  House and car payments come first, and with anything left over you can begin to catch up on outstanding credit card debt.  The bottom line is to play by your rules, not the credit card collector’s.  After all, you are the one that has to suffer the consequences of missing a house payment, or getting your car repossessed.