Credit Card Basics : Responsible Use

When you use credit cards, it is important to be responsible with them. Credit cards can be great tools, helping you find a financial advantage. However, they can also quickly turn into a financial trap, drowning you in debt. In order to prevent turning into a victim of credit card debt, you need to practice the principles of responsible credit card use :

Don’t Spend Money You Don’t Have

It’s tempting to think of a credit card as “extra” money. However, it’s important to remember that credit cards are loans. You are borrowing money. Credit cards are convenient, and they can provide you with rewards. However, remember that you are using borrowed money. If you don’t pay it back immediately, you will have to pay interest on it. As a result, it is a good idea only to make purchases with your credit card that you know can be paid off immediately.

Stick to a Budget or Spending Plan

Making a budget or a spending plan is a smart thing to do. Having a credit card does not give you license to spend beyond your budget. Stick with your spending plan so that you are living within your means. Use your credit card to buy what you need, but make sure that you are keeping within the limits of your budget. Once you start venturing outside your spending plan, you are more likely to build up unmanageable amounts of debt.

Track Your Spending

Many people track their spending when they use a debit card tied to a checking account, but neglect to track their spending on a credit card. Because the money isn’t coming out of your checking account, it can be tempting to just not worry about what you are spending. However, you should be keeping track of your credit card purchases. Otherwise, how will you know if you are sticking with your budget? Additionally, if you aren’t tracking your credit card spending, you might not realize when you get too close to the limit. Going over your credit limit can result in high fees and a higher interest rate. Keep up with your spending to avoid these problems.

Pay Off Your Balance ASAP

You want to be able to pay off your balance ASAP in order to avoid interest charges. All the rewards in the world are rendered useless if you are paying interest on your credit card balance. The best practice is to pay off your credit card balance every month. However, if you make a bigger purchase, it might not be too bad if you can pay it off in two or three months. But, still be aware of the money that is going to interest. Making a plan to pay off your balance as soon as you can is the best way of approaching credit cards.

Bottom Line

Using a credit card doesn’t automatically condemn you to a lifetime of debt. However, you have to be smart and responsible about the way you use credit cards. When used cautiously, as part of your overall spending plan, credit cards can be a great tool. If misused, though, credit cards can put you in financial bondage.