In accordance with the American Bankers’ Association, the average American household has $8000 in credit card debt. With credit cards, there’s always the possibility of spending more money than you have. Even if you make your payments on time, if you are merely paying the minimum amount, it may take a decade or more to repay even the nominal balance. A credit card can be an asset, but if handled carelessly, it immediately turns into a liability. Once you start defaulting on credit card payments, you may land in a sea of serious financial problems. Additionally, if you accrue an insurmountable amount of credit card debt and fail to pay it off, not only will it have a negative impact on your credit rating, you may even have to file for bankruptcy.
Many people are tempted to run wild, buying everything that they crave. However, injudicious use of a credit card can create debilitating debt. This is not to say that a credit card should never be used. When used sensibly, it can help build good credit, which makes it easier to obtain mortgages and other kinds of loans in the future. Below are a few simple tips on using a credit card wisely:
Identify your spending habits – Before applying for a credit card, consider how you will use it and set certain guidelines for yourself. You should try to live within your means, stick to your budget, and avoid overbuying. When you do not have the required cash in your bank account for a particular product, don’t purchase it! Ask yourself whether you really need to buy it. If so, postpone the purchase until you have the cash to pay for it.
Check the number of credit cards you have – Each time you apply for a credit card, it is noted by the credit reporting organizations. Applying for too many credit cards can spoil your credit rating by forming the impression that you might be a bit too reliant on them.
Pay your entire balance – When you pay your credit card bills late, or do not pay the total amount, your debt rapidly adds up. Many credit cards have an automatic billing alternative so you can pay the entire amount from your checking account every month. With this automatic payment process, you do not have to remember when your bill is due, and once you start making your payments on time, your credit score will improve.