The credit limit represented by the credit card is not just free money that has to be spent but represents a short-term loan extended by the credit card company to you. Unpaid balances accrue interest and overdue balances will accrue interest, fees and sometimes will cause the interest rates to go up.
The first step in managing money wisely when it comes to credit cards, is to budget expenditures and only purchase what can be repaid in full each month. Except in the case of emergencies, a credit card works best for the consumer when used only in moderation and not to increase spending beyond what they can afford. Credit cards do not increase the consumer’s income, or their ability to repay a loan and that is what money spent on a credit card is, a short-term loan.
Paid on Time
When a card has been paid on time for a number of months or years, the available balance or line of credit may be increased by the credit card company. This does not mean the credit consumer needs to increase the amount they spend on their credit card unless they can afford to repay more each month. Credit is easy to ruin and far more difficult to repair, and the best way to control it is to monitor spending and assure the funds are available to pay off the balance.
Using a credit card to track expenditures, avoid carrying cash or as an emergency line of credit should the unexpected happen is wise money management. Spending on a credit card beyond what you can afford to repay, or spending just because there is still an available balance, is not wise money management. It may seem obvious to spend only what you can afford unfortunately this is not always understood by the credit consumer.
Cash advances with a credit card may be far more expensive than simply withdrawing it from the bank , even if the balance is paid promptly with the bill there may be interest charges that apply only to cash advances. While this may be fine in an emergency, it is wise to read the credit card terms carefully, understand any interest rates and charges that may apply and use this feature only when necessary or advantageous.
Taking care with your credit card spending, planning expenditures, and paying off balances promptly can in turn yield rewards far beyond just a debt free life. Paying bills promptly will usually result in a better credit rating. Better credit ratings will normally result in lower interest rates on credit cards offered in the future, eligibility for the better rewards programs and even a larger line of credit, if that is desired as an emergency cushion.
Not a Skill
Wise money management is not a skill that is instinctive with most people, it is a learned behavior taught by parents, role models or learned as one of life lessons. The rewards for budgeting and managing credit are both obvious, such as qualifying for better mortgage rates due to a good credit rating. In addition, wise money management yields the less obvious rewards such as not worrying about how to make the next payment on the credit cards and how to avoid bankruptcy, in other words financial peace of mind.
Never too Late
It is never too late or too early to begin learning to manage credit so it works for you and you do not work for it. Credit cards are lifesavers in emergency situations, they are an aid to budgeting and understanding where money goes each month, they are excellent for purchasing online and traveling without carrying cash, but you still must have a realistic grasp on what you can afford and what you can’t.
If you don’t feel you can afford a fur coat on your salary before you get a credit card, the chances are you will still not be able to afford it after getting a credit card. It may be easy to sign that credit card slip for an expensive purchase, but it is always important to remember, the bill comes due and it must be paid. Learn to use credit cards to live a better life, and control your spending, don’t let your spending control you.