For many of us, getting our first credit card is a big step that can make us or break us in the financial world, depending on how we manage the responsibility. For those who’ve been there and done that, while you may have failed the first time around, getting a second chance means you already know the ropes. Perhaps you’re recovering from online credit card debt consolidation programs. Follow these tips to help you get on the winning team of personal finances.
It’s a fact! Best credit management practices will afford you the best credit score you need for the best interest rates on the house of your dreams and the car of your envy. It may take a few years to get there but if you’re consistently applying sound money management skills, you will. Good credit management can even help you land the right job! That’s why it’s best to start early. First-time credit card users, especially, benefit the most. The first thing new credit card users should remember is that when you are given a credit limit to spend however you wish, you are using borrowed money from the credit card issuer who expects you to repay.
Be careful not to fall into easy debt traps when you are preparing to use your credit card to make a purchase. Follow these easy tips to help you stay focused.
Live According To Your Means
The most important tip you can walk away with is the benefit of budgeting. However, many new and old credit card users just don’t know where to start when creating a realistic budget.
Financial advisers agree that starting with your rent or mortgage payment is the most critical payment on the ledger. Move on to auto loans and auto insurance payments, followed by utilities bills. See where you can save even $20 a month by reducing any of these costs. Move to a cheaper part of town. Turn lights off when you’re not in the room. Save water doing dishes in the dishwashing machine, and take notice of your electric and water meters. See how you can save on your utilities bill. From washing your clothes only once a week to setting the stove on medium instead of high temperatures, every little bit adds up. Grab new outfits from the sales rack instead of the front display.
The last items on your budget should be food and entertainment. While we all must eat healthily, take out, and restaurant expenses should be avoided, including fast food restaurants. It’s okay to eat out on occasion, but making a lifestyle out of eating out is dangerous to both your financial and your physical health.
Track your expenses for a month using any of the techniques known to work such as envelopes, ledgers, financial diaries, or expense tracking software and apps. After you know where your money leaks are, patch them up and stop wasting cash on unnecessary items. You can have a well-rounded lifestyle that includes entertainment budgeted according to your income. And don’t forget your vacation.
Pay Off The Total Balance
Your credit card expenses should be part of your budget. If so, you will have no problem paying off the balance each month. It’s best not to incur in credit card debt above your means. Don’t forget that when you carry a balance, you must pay fees and interests. Avoid them altogether by paying your balance each month. Otherwise, the debt adds up and eats up your wealth. Young and first-time consumers sometimes take out two or three different credit cards with varying credit limits. If they are not able to pay off the balances, the debt will start piling up on each. Pretty soon they may find themselves having to resort to credit card debt consolidation companies. The consequences are lowered credit scores and major interest rates. Avoid this scenario by paying off your balance every month.
A Credit Limit Increase Doesn’t Mean You Have More To Spend
It may be exciting to see that your good work is paying off and your credit limit has increased. Congratulations! However, don’t go out and purchase items you don’t need. You’ll soon be in debt if you do. If you’re sticking to your budget and your income has increased along with your credit limit, you’ll be unable to satisfy the total balance of your credit card every monthly statement. In other words, you’ll be in dire straits. Fees and interests could compound your debt to even ten times what you originally borrowed if you’re only making the minimum payment. Keep the 20/80 rule in mind. Owe 20% or less of your credit limit to maintain a positive debt to credit limit ratio. Maxing out credit cards increases the risk of needing debt consolidation.
How Cash Advances Can Stunt Your Growth
Want to take a vacation, but you need cash-in-hand for the getaway? Be ready to pay higher interest rates for cash advances than you do for your credit card purchases. Besides, the icing on the cake is having to pay for ATM fees if you need the cash right away because you didn’t make it to the drive-thru teller on time. Plan your expenses ahead of time. Being on a budget doesn’t mean you can’t compute the cost of a deserved vacation into the big picture! When you live your life to the fullest, you plan your getaways into the budget.
On Time Means You’re Smart
Confidence! That’s what every consumer needs when things go wrong. Anyone can be confident when things are going well. But “when the going gets tough….,” you know the rest. Pick up the phone and talk to your bank and credit card issuer. Type in the keywords on your device and find the most up-to-date data on the subject. Yes, you’re going to be late, but you can make payment arrangements. Can’t make a payment arrangement? Tell your creditor you are willing to negotiate the terms of the loan to avoid a write-off. Credit card issuers will be grateful for your consideration. Having to write off debt is one the worst scenarios for the banking company as well as for consumers. Remember, they have lent you the money on an unsecured basis.
Make payment arrangements and keep them, and if you can’t keep them call them back and let them know what you are going through. Credit card companies will work with you when you’re unable to make a payment if you have a good record of paying on time. Your credit score will go up, and your profile will start scaling. Do yourself a favor and pay on time.
Read The Boring Stuff
No one likes reading the small print on letters sent by credit card companies. But when companies make changes to the terms and conditions of your credit account, they are required to send you notices. If you throw the mail away as junk mail either online or by snail mail, chances are you’ll end up accepting terms by default and unable to do anything about it once the deadline to respond has passed. Don’t let go notices go unattended or without reading and responding. Call the credit card issuer with any questions you may have to clarify your understanding of the letter contents. Credit card debt consolidation may be necessary in cases when more than one credit card is maxed out.
Sharing Cards Is A No-No
You’d think everyone knew this one already. But many people still get into financial trouble after lending their credit card to friends and family members in need of assistance or for any convenience. Sometimes solving a problem quickly requires your help. You’re caught between a rock and a hard place, you give in, and the next thing you know, your credit card has been maxed. When using your credit card online, make sure you verify the vendor by email. Check websites, verify phone numbers and emails before giving out your credit card information. Never consent to give anyone a cashier’s check before having verified the company during regular business hours. Verify their physical and digital address. Provide sensitive information only to those you have contacted for a service or goods. If possible, verify the company’s activities with past customers through online reviews and shop around before you make up your mind.
Having excellent credit scores is possible even for those with small incomes when their repayment track record is consistently on time, and their credit to debt ratios are the healthy 80/20 rule.