5 Rules to Follow if You Want Good Credit
According to research conducted by the United States Federal Reserve, almost half the country is now dependent on credit card debt as a component of household budgeting. 43% of Americans carry over a credit card balance every month, whereas 57% of Americans use credit cards purely for convenience without carrying over a monthly balance. Either way, using credit cards is fast becoming an unavoidable skill in life. The good news is that when used efficiently, credit cards are a great way to govern routine expenses and soften the blow of inflation. The bad news is that using credit negligently can plunge people into overwhelming debt.
Here are a few tips on how to avoid financial catastrophe when using credit cards regularly:
- Remember – You Have to Pay it Back – Credit cards are not bank accounts. Nor are they money. Credit cards are tangible representations of a loan. Like any conventional loan, if you don’t pay your debt back, that makes you a thief. Unless you want to become a thief, your highest goal when using credit cards should be paying back the balance.
- Distinguish Between Wants and Needs – Spending money on things you don’t need is the quickest way to burden yourself with mushrooming credit balances. If a spending decision won’t have any impact on your health and well-being, pause to evaluate whether you can actually do without it.
- Record Your Card Balances – No matter how many credit cards you open, make sure you keep track of their balances at least once every three months. Design a spreadsheet and update it routinely with records of your outstanding debt. This encourages you to be mindful of whether things are getting out of hand.
- Don’t Settle for the Bare Minimum – Paying back debt has nothing to do with making minimum payments, and everything to do with clearing an outstanding balance in its entirety. If you choose to pay back a loan strictly through the minimum payments that are due, you’ll end up paying excess cash via interest charges.
- Focus on One Card – Opening multiple credit cards might give you more transactional flexibility, but using several credit cards at the same time also compounds your monthly payments. If you can, choose to transact with a single credit card that has a high credit limit. Simplifying always works when it comes to money.
Money-management is one of the most common challenges that people face in life. Good money-management leads to upward social mobility whereas bad money-management leads to hardship and poverty. Unfortunately, human nature tends to be more inclined to practice bad money-management thanks to selfish emotions. It’s easier to make greedy or reckless decisions with your cash than it is to be disciplined and tactical. However, it’s impossible to ever achieve financial freedom without deciding to practice good money-management, especially when it comes to maintaining good credit and servicing debt. So, no matter where you are in life, or how much sacrifice it takes, start being responsible and efficient about your finances today, if you want to have a brighter tomorrow.