June 2,2009
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Using CC's Wisely, Pt.2
Spend what you can afford.All credit cards come with a limit. Consumers will often mistake the real meaning of the limit. They see it as the bank's belief that they are capable of spending the limit and comfortably paying it off. However, this is a myth. Lenders calculate credit card limits based on information they see through the credit bureau and are not privy to information that the consumer has. Such things as medical expenses, childcare expenses, and monthly living expenses are only known to the consumer. Therefore, the limit doesn’t mean that you should spend to it. Be wise and prepare a monthly budget which includes the amount you intend to spend on credit cards plus an allocated amount to pay down any existing card debt. Most importantly, consumers should stick to the budget. If you are going to make any headway in paying down existing debt, you must pay more toward the debt (not including interest) than you have charged.
Remember that paying back your credit card charges also includes paying any accrued interest. If you do not expect to have the cash to pay the bill when it arrives in your mailbox, you will be paying interest. That fabulous sale could end up costing you more than the original retail price. On the other hand, if you have the funds to pay the credit card bill in full when it arrives, you could potentially be earning additional money if it is sitting in an interest bearing account. It is best to take a few minutes before you make that impulse buy to determine exactly how you intend to repay the charge.
Begin setting spending limits based on your income and monthly budget from the beginning to avoid getting caught up in the debt trap. Remember, if you do not have the cash to pay the credit card bill in full, don't buy the item. If the cash is sitting in the bank, use your debit card. Many banks now offer points for using debit cards and it costs you nothing.