April 2,2009
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Finding the Right Credit Card Balance, Pt.1
Short-term liquidity.Here are some guidelines to determine when to carry a balance on a credit card, when to not and when a controlled balance is the best path. For some very revealing background in reality and reverse results, please refer back to the article series entitled: "PIF vs. FICO vs. Lowered limit ".
Pay interruptions: Many people have to go through dry spells. ‘Feast and famine' periods. Like contractors and seasonal workers. These are good times to balance interest charges against cash reserves. It's important to have a good supply of both cash and credit at your disposal. Keeping prudent running credit card balances just under the advised 30% of available credit limits is a good way to build good credit score. This provides an even greater resource of credit when you need it. Owing too high of a credit card balance tears it down, however. Good credit card ratings can go a long way, especially with those large loans like buying a house or automobile. A good credit rating can save thousands of dollars over the term. High interest credit cards, however, can work against you.
Living paycheck-to-paycheck in shark-infested waters: Many people live their lives this way. Without a credit card, there is scarce fluidity when the cash runs dry and you can't wait three more days till your paycheck clears at the bank. Payday loans can sap you dry and grip you like a ‘company store'. These are the pits yet, most people don't realize how easy it is to escape them. Credit cards will never be a panacea to not having enough money and should never be used for this purpose. But, they do make an excellent lubricant to ‘grease the gears' in those awkward situations where the cash-flow jambs up.
Even at worst, credit card terms are far better then ‘good terms' with the corner loan-shark. Instead of throwing away money, it's a simple thing to let your money work for you instead. In this case, however, it's best to devote serious effort to keep that credit card balance low.