Under new credit card rules, credit card companies are required to explain how long it will take you to pay off your balance if you only make the minimum payment.Under new credit card rules, credit card companies are required to explain how long it will take you to pay off your balance if you only make the minimum payment. (Jochen Krause/Associated Press)The recent economic downturn had everyone tightening their belts: we were all saving more, spending less and paying down our debt. Things are turning around according to economists, and America is rekindling its love affair with plastic — consumer credit card debt rose in December 2010, the first increase since 2008. Revolving debt is up 3.5 per cent — good news for sales and the economy in general, but should you really be comfortable loving your plastic again?

Here are five reasons why you should think twice about getting back together with your credit card.

  1. The balance trap: You went out to dinner a few times, that car repair ran higher than you thought, and you just had to catch that sale at your favorite store, so you pulled out the plastic. The bill comes in, and your heart stops — where did all those charges come from? Credit cards are a convenient payment method, but all too often, we use the credit limit as an excuse to avoid budgeting. Unless you pay the balance in full, you're now paying hefty interest charges for a dinner you've long forgotten, and that deal on those shoes now costs a lot more than you bargained for. Remember how hard you worked to pay off the balance on your cards, and how long it took? Don't sabotage your progress by using plastic again. If you must (because of rewards, perhaps) use a card, keep a log of your expenditures, and mentally deduct them from your bank balance. This way, when the bill comes in you can pay it off.
  2. Overspending: Research shows that when people pay with a credit card, they're often willing to pay twice as much than when paying cash. Consumers leave larger tips, are more relaxed - in short, credit cards make us overspend. The reason for this is simple: you don't feel the spending pain you do when paying cash. Try paying cash for things, especially non-essential items like restaurant meals. If you must use plastic, set limits before you go shopping based on what you can afford, and don't go over. You'll thank yourself when the bill arrives.
  3. Teaser rate trap: Got one of those offers in the mail, with pre-printed checks to spend on whatever you please? Interest rates are low, and boy, does that image of a beach vacation look good when you've just shoveled another foot of snow off the driveway. Don't be tempted. Would you take out a loan to pay for a vacation? Save up for what you really want instead — that check comes with a low rate that goes up to a not-so-low rate faster than you think. Credit card debt is called revolving for a reason: interest accumulates a lot faster than on any other debt, so don't flirt with financial disaster by signing that check.
  4. Fees and grace periods: If you're like most people, you pay your bills once or twice a month, but your credit card runs on a different schedule, with terms (or grace periods) of 30, or even 20-odd days. It's easy to slip up when trying to keep up with your beloved plastic's schedule, and companies will punish you with late fees and marks on your credit report if you're not vigilant. Pay close attention to your next due date — or better yet, don't rekindle your love affair with your credit card in the first place.
  5. Making up for lost time: Most of us have been living on a tighter budget for a while now, and it takes a lot of discipline. It's hard work to live within your means, particularly if you've been unemployed or have been doing without luxuries in order to pay down your debt. It's easy to feel like you've "earned it" and warm up to using your credit card again to make up for lost time — but don't be tempted. Emotional spending, whatever the reason, is a bad habit, one that likely had you suffering to pay down balances for a long time. Don't give in to the lure of easy spending with plastic. Remember how good it felt to pay that debt down, and find a different way to reward yourself for your hard work, one that doesn't involve a trip to your favorite store.

The bottom line

Credit cards are a fun yet high-maintenance love affair, but you knew that already from previous break-ups. Cash may be brutally honest and not very shiny, but you'll have no shopping hangover in the form of a hefty credit card bill. Add to your savings instead of to America's $800.5 billion in credit card debt — the economy will grow just fine without your plastic.