Using Credit Wisely

Too many Americans are using credit cards on a daily basis without realizing the impact it will have on their future. According to Experian’s “National Score Index “, at least one in ten consumers have more than 10 credit cards. The average amount of debt carried totals $8,500. For people who don’t pay off their balance in full every month, it’s so easy for this to get out of control.

However, when used wisely, credit is not only convenient, but it can be part of a sound financial plan. There are obviously good reasons to use credit, such as financing the purchase of a new home, car, or major home improvements. Credit is useful in emergencies as well if you haven’t saved up enough money in your emergency stash. However, purchasing luxury items that you cannot afford or buying things that will not outlast the credit payments are not “credit worthy” and can get you into trouble.

The following are some tips to help you use credit more wisely:

1. Limit the number of credit cards. In turn, you’ll be limiting your potential for debt. It’s also easier to keep track of your money with fewer cards.
2. Plan ahead. Don’t use credit cards to purchase everyday items, food, or clothes. When you must, make sure your income will be able to cover it when the bill arrives, along with your basic living expenses.
3. Always pay your bills on time, every time, and pay more than the recommended minimum amount so you can reduce the monthly finance charges and pay them off quicker.
4. Don’t charge items that will not outlast the credit payments.
5. Try living on cash for a month or two—you’ll be amazed at how much less you spend. Most consumers become more discriminating when it comes to deciding how they’ll spend their cash.
6. Eliminate store or department store cards; they typically have higher interest rates than other credit cards.