If Credit Cards Are the 'Pot of Gold,' This Keeps the Tricky Leprechaun at Bay

Alamy Many an Irish-American child has caught a glimpse of a rainbow, hopped on a bicycle and tried to get-rich-quick by finding a pot of gold at the end. Alas, my adventures in gold chasing ended after a few miles of intense cycling when I realized my goal would forever remain elusive. Unbeknown to me, though, another fictional pot of gold existed under the guise of credit limits. While it's far easier to convince a bank to offer you a credit card than to come across a leprechaun's fortune, the money is just as fictional. Your credit limit is determined by your income, and your behavior can change how much is available for you to charge on a card in a given month. This access to purchasing power offers a tantalizing possibility of living far beyond one's means. Credit Cards Can Create a Debt Cycle The issue with credit cards is similar to the fantasy of gold at the end of a rainbow. Both offer the illusion of wealth and ability to feel rich quickly. Credit allows users to live outside of their means by simply giving into impulse and swiping a plastic card without the thought of whether funds will be available to pay it off. At this point, the financially savvy are rolling their eyes and yelling the following advice at their computer screens: "Don't spend more than you can afford to pay in full each month." Yes, the answer is that simple. Unfortunately, too many American adults behave like children chasing a pot of gold by charging more to their credit cards than they can afford. This behavior is part of what led to Americans hold an average of $27,887 in consumer debt in the United States, according to a recent study by Experian. (Of course given that this number includes credit cards, car loans, personal loans and -- wait for it -- student loans, it's not just a matter of people thoughtlessly splurging. College debt is a real doozy.) Still, it's easy and common to misuse the power of plastic. I have more than $10,000 of available credit. That relatively high credit limit (compared to my income) can be used to my advantage to keep my utilization rates low, but the potential to land into serious consumer debt lurks -- silently -- waiting to smack me with interest rates and monthly payments. As Devious as a Leprechaun If a 24-year-old like myself can easily get access to $10,000 of credit, it's no wonder people fall into the trap of consistently charging far more than they can afford. But the access and the credit cards are not to blame. Big banks are as devious as leprechauns and use prettily packaged incentives like cash back and reward miles to lure you in. Ultimately the ability to avoid their traps comes down to self-control and understanding personal cash flow. Save for a few extenuating emergency circumstances -- buying the latest iPhone doesn't count -- a credit user should never charge more than his or her monthly budget allows. Credit cards are a vital financial tool. They reduce to amount of cash one needs to carry around. Swiping plastic helps build credit history and when used responsibly can improve a credit score. A line of credit allows someone to make a large purchase that could be paid off in full by the end of the month, but perhaps not right at the time of the transaction. Credit cards can even be used to essentially beat banks at their own game by churning them for rewards. While credit cards may feel like the pot of gold at the end of a rainbow, credit are in their own way the real treasure -- in that they help you keep more of yours. Plus, you don't have to deal with any pesky leprechauns.