Being honest with yourself

It is important, first and foremost, to be honest with yourself. Why do you think you need a credit card? What will you use it for? Are you in a financial position to be able to use a credit card responsibly?

These are home questions that may be difficult to answer. You may not like the answers. But you should carefully evaluate your situation before you apply for a credit card. This is especially true if you already have credit cards, and you are thinking about applying for another one. You should figure out what you want to use the card for, and whether you really need it. Some of the reasons people use credit cards include:

• Paying bills. Many people find it easier to manage their cash flow when they pay bills automatically with their credit cards. Many utilities, services and other bills will accept online credit card payments, or have automatic billing.
• Consolidating debt. Another popular reason to get a credit card is to consolidate debt. This is when you use a credit card to pay off other debts. When you do this, you can make it easier to keep your debts under control. Most people do this by applying for a credit card that has a low introductory rate. The idea is to make a plan to pay off the credit card before the intro period is over.
• Earning rewards. Others like credit cards that help them earn rewards. Cash back, airline miles, hotel rewards and merchandise are all things that can be "earned" by using credit cards. For the savvy consumer, it is possible to get these rewards virtually for free because they pay off their credit card balances each month. It is important to note that interest charges can destroy the value of rewards is you are not careful.

Another question you have to ask yourself is whether or not you can use a credit card responsibly. If you already have a great deal of debt, and if you have not changed your habits to reduce your spending, chances are that another credit card will only compound the problem by putting you further in debt. Before you get a credit card, it is important to understand that discipline is required for wise credit card use. You should have a plan for your credit card before you get it.

Avoid traps set by credit card companies

Credit card companies will try to convince you that you need their card. They may try to lure you in with promises of great opportunities and with the appeal of what you can buy. Do not be fooled. Many credit card companies make their cards seem attractive, but they really are not. Carefully consider the following items before you commit to a credit card:

1. Interest rate. You want a low rate. Not just a low introductory rate. Check into what the regular rate is after the intro period ends.
2. Credit limit. Beware of promises of a high rate. You may decide to apply for debt consolidation based on an ad for something that is "Up to $20,000!" Unfortunately, if you are planning to consolidate debt with a credit card, you are rarely granted what you need to pay it all off.
3. Fees and other charges. Find out what the fees are. Some credit card companies charge fees of around $39 if you go over the limit or make a late payment. Others, though, charge fees of $45, $50 or more. Check the fine print to see what fees are charged -- and this includes the balance transfer fee.
4. Credit monitoring and protection. Many credit cards offer credit monitoring services and payment protection. While these can be useful, they also cost money. You can actually monitor your own credit for a pretty low cost, and you can build up an emergency fund to protect you just in case something happens and you can't make payments. Of course, the best policy is to not carry a balance, then none of the protections become necessary.

Remember, though, that the credit card company wants your money, and wants you to be in debt -- just enough debt that you can keep paying, but not quite pay off the balance.

Before you get a credit card, carefully consider your needs, and whether you are ready to handle the responsibility.