There is no doubt that a credit card can be a handy tool in your financial arsenal when used responsibly. The key is to always live within your means. Most people that have issues with debt incurred by credit card usage do not follow this line of thinking. Contrary to popular belief, credit cards are not evil. It is how they are used that is the problem.
The most important rule of responsible credit card usage is to pay on time! If you are not able to pay the full balance each month when your statement arrives, pay as much as you can and do not be late. Your payment history is the largest factor considered by lenders when you apply for credit, accounting for 35% of your credit score. Skipping payments is also to be avoided at all cost!
If you have trouble budgeting your money, it might be time to sit down with all of your bills and take inventory. Create a budget that includes all expenses, including expected credit card expenditures, but make sure that necessities are calculated in first. Set aside a percentage to put in savings for unexpected expenses, then with what is left remember to pay yourself! This may seem silly, after all it is your money, but many times we forget that important part of the budget. When all of our paycheck goes out to cover expenses we can begin to feel resentful. For some people this can trigger a trip to the mall with plastic in hand.
By following a pay-as-you-go approach to shopping you will most likely never have a problem with credit card debt. Unfortunately, many people do not adhere to this philosophy. The cycle of debt begins innocently enough with a few items carried over on your statement that you promise yourself you will pay off next month. Next month comes and a few more items are added. This is how it begins.
For many people using a credit card can seem like free money and though the fact is that purchases will ‘eventually’ have to be paid for, it is easy to visualize ‘eventually’ as some point in the distant future. This logic is reckless! A good rule to live by is to either pay for your purchases immediately or at most within three to six months. Remember that after the initial billing period those bargains that you found begin to accrue interest so any savings you may have gained will diminish rapidly. Instead of using your credit card, if you can’t afford it right now why not save up and pay cash for your treasure? This way you will only pay for the item you wanted and not interest charges on your credit card balance.
If you have trouble keeping your spending in check when you have your credit card on hand, it might be time to get out the scissors. Although you may not actually go to this extreme, until you have your balances paid off, you might benefit from locking your cards away in a safety deposit box at the bank or letting a trusted friend or relative hold them for you. This will ensure that you are not making purchases on impulse. Try switching to cash and save the credit cards for real emergencies.
If you are in the ‘pay-as-you-go’ group, why not apply for a card that offers rewards? This way you are getting paid to shop, not the other way around. The rewards may be small, sometimes under 1%, but this is free money to you! Reap the rewards of your good financial behavior.
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