Do you use your credit cards to your advantage? Most people associate credit cards with debt. However, it is possible to use credit cards along with a healthy personal finance plan. The secret is to use them properly and responsibly. I want you to know how to determine whether credit cards are a wise choice for you.
Living beyond your means
Do you have more than one credit card? If you do, chances are good that you are misusing them. Having more than one often makes it too tempting to overspend, simply because you have available credit. Many people make the mistake of using credit cards to purchase things they otherwise could not afford. It is important to remember that if you cannot afford the item, you shouldn’t buy it.
Too much credit and too many fees can get out of hand
If you are using several credit cards, it may be a continuous struggle to keep up with the monthly payments. Credit cards are a no-no if you cannot afford the payments or make them on time. When you make a late payment or miss a payment, you will be charged extra fees, such as late fees, over-limit fees and extra finance charges. These can impact your credit in a negative way, and they create a snowball effect that makes paying off your credit cards difficult, if not impossible.`
All those finance charges will add up
If you carry your credit card balances over from month to month, only paying the minimum payments, it may take years to pay them off. Many people don’t take into account that by the time they pay off items purchased with plastic, they are paying several times the original cost of the items due to the finance charges. The best way to use a credit card is to use it for purchases you normally make each month, such as groceries and gas, then pay the balance in full when the bill comes.`
Use credit cards as a tool to build credit
In spite of all the negatives concerning credit card use, they are actually an important part of your personal finance plan. When a person starts out life as an adult, it is important to build good credit. You can’t build credit without using credit. Therefore, it is good to start out with one credit card. Use it for monthly purchases, and pay it off in full each month.
The proper use of a credit card will help you to build a credit history that will follow you throughout your life, making it easier to make larger purchases down the road, such as a car or home. It is not necessary to own more than one credit card if you use it correctly.
Credit should not be your emergency fund
Another way people can misuse credit cards is by turning to them for emergency situations like car repairs or medical bills. These debts can take many years to pay off, along with the mountains of interest charged over time. A better solution is to save the money you would pay each month on a credit card payment, and put it into an interest-bearing savings account. Let this be your emergency fund. It’s interest-free when you need to use it, and won’t ruin your financial plan.
Credit cards are a slippery slope to navigate
As you can see, it is easy for credit cards to either make you or break you. If you abuse credit, your finances and credit will suffer, and you may suffer as well from the stress of money troubles. But, used wisely, credit cards can be a helpful tool that will enable you to build good credit that will last a lifetime!
If you want to check your current credit score, go to FreeCreditReport.com
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