As of 2010, the average American credit card holder owed over $8,000 to credit card companies. And while those with extreme debt pull that average up, it’s equally true that those who pay off their cards in full every month pull it down. The average college student owes about $20,000 in student loans by graduation, some three times that much, plus another $3,000 in credit card debt on nonessentials.

Credit cards facilitate impulse buying, typically for unnecessary and self-indulgent purchases. When using credit, consumers buy more, buy what they don’t need, and pay more for it.

Like being handed the controls of a deadly weapon with a hair trigger, many people are propelled by their credit cards into irresponsible debt that entails exorbitant interest, often 15 to 20 percent annually. (Even when it’s under 10 percent, it adds up quickly.) The person with a $2,000 balance (at 19.5 percent interest) is told he can pay just $75. But he doesn’t realize that the first $32.50 of that $75 is interest! He goes right on charging “sale” items and digging an ever deeper hole.

If you carry a $7,000 balance on an 18 percent credit card and pay the 2 percent minimum payment each month, you’ll end up paying more than $20,000 for that $7,000. All those things you bought at half price? They may cost you three times what you think they did.

Some people use credit cards for the convenience, paying off the full amount owed on every statement so they don’t ever pay interest costs. We do this ourselves, and in twenty-five years we have never paid any interest. This approach has advantages, but it also has drawbacks. Citibank calculates that a consumer using a credit card will buy 26 percent more than he would if he were carrying cash, even if he pays it all off without interest charges.

Here are some simple rules:

• Never use your credit cards for anything except budgeted purchases.
• Pay your balance in full every month.
• The first month you have a credit card bill you cannot pay in full, perform plastic surgery—cut the card in half and don’t get another one.

Even if you pay the full amount when due and avoid interest charges, if it’s psychologically easier for you to lay down a credit card than to part with cash, you shouldn’t own a credit card. If you carry a credit card and say, “I won’t use it except for emergencies when I would have used cash anyway,” you may minimize the drawbacks. But keep an eye on your spending. The ancient book of Proverbs applies directly to our use of credit cards: “A prudent person foresees danger and takes precautions. The simpleton goes blindly on and suffers the consequences” (Proverbs 22:3).

When it comes to credit cards, be wise, not foolish. 

For more, see our resources on money and giving, as well as Randy's related books.

photo credit: Credit Karma via photopin (license), cropped