9 May 2006

Credit Cards And Personal Budgeting

When you apply for and receive a credit card, you will want to take the time to create a detailed budget for your family’s finances. Without a budget, and without carefully planning the credit card expenses, you could fall into the credit trap that many individuals have found themselves in. Swimming in a sea of debt that they have no way of getting out of. Having a credit card is a wonderful way to ensure that you have access to funds in the event of an emergency, or for use when traveling to eliminate the need for carrying cash on your person. As long as you keep the card for the purposes outlined in your personal budget, you will have no difficulty maintaining your credit card balance, making payments on time and using the credit card to it’s fullest financial capacity. If you start using the credit card as if it was your personal debit card, you will likely find yourself in financial trouble. 

Personal Budgeting Tips and Tricks
First, and most importantly, never spend more money than you can actually afford. This is easier said than done of course, especially when you include credit cards in the equation. It’s very easy to buy now, with the intent of paying later, only to find out when later comes you still don’t have the money! Using credit cards wisely however, can save you finance charges and enable you to make purchases and build your credit by making monthly payments in full and on time.

If you already have a credit card (or two) with balances, you should consider shopping around for credit cards that are offering promotional rates. Many companies will periodically offer a 0% balance transfer rate for all new customers who apply for and obtain their credit cards. Transferring what you owe from one card to another can help you save on interest and help you pay down your debt faster. This is a smart way to use credit cards!

Understand your credit card limit. Just because your credit card has a limit of $5,000 does not mean that you should spend that all at once! Ideally, a credit card should be used with the intent of the individual paying the balance in full at the end of each month. This will avoid finance fees, interest charges and allow you to make purchases on your credit card that are the same as paying with cash. As soon as you allow a balance to carry over from one month to the next, you are going to start seeing your account balance increase, instead of decreasing with your payments, thanks to high interest rates and finance charges on purchases.

When determining how much money you have available for purchases, you should first make a list of all of your outgoing expenses each month. Be sure to plan for incidentals and things that don’t occur regularly- such as oil changes and car tune-ups. Also, consider your personal savings a monthly expense. (Just because you don’t pay them monthly doesn’t mean you shouldn’t plan for them monthly!) Then, determine your monthly income. Subtract your expenses from your income to see what you have left over, and this should be your flexible spending amount in your budget. Even if you have access to a credit card, you should never spend more on a purchase than this “flexible” money. This will keep you from getting into serious financial trouble. 

When you take the time to create a budget and follow it you are a responsible credit card user who will likely not end up swallowed by the dreaded debt monster!

By: Debbie Dragon


Anonymous said...

Good advices, really. Had I found this post before, I would not have run into deep debt. When I used a credit card, I never thought I spend so much on it. Perhaps, I considered, it was a gain and I would never have to pay off my credit.

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