How to Use Credit Responsibly
Credit cards and other loans can help you pay for needed items, but if you use them irresponsibly, you can get into serious financial trouble. Learn the basics of responsible credit card and loan use so that you don’t get into a cycle of debt that you can’t break out of.
It’s important to limit your credit card use for a couple of reasons. If you use too much credit, you won’t have much available if you need it in an emergency. In addition, using too much credit means that you have to pay a larger bill at the end of the month or pay larger finance charges if you don’t pay your credit card balance off in full. Finally, maxing out your credit cards hurts your credit score.
To avoid these problems, you should limit yourself to 30 percent of your credit card limit for each card. For example, if you have a credit card with a limit of $1,000, don’t charge more than $300 in purchases each month, and pay the card off at the end of the month.
Some credit card companies allow you to get cash advances by using your credit card at an ATM machine or at the bank. It can be tempting to do this because you can get the cash in hand right away. However, you should avoid using your credit card for cash advances. Credit card companies charge high interest rates on cash advances, and you may end up paying for that cash for months to come. If you are having a financial crisis, make arrangements with your creditors or pay for purchases using the credit card itself rather than getting cash advances.
Similarly, you should not take out payday loans. Payday loans work on the same principle as cash advances. Instead of borrowing against your available credit, you borrow against your next paycheck.
Most payday lenders charge much higher interest rates than you would have to pay if you took out a traditional bank loan or used credit for purchases. Thus, you may end up in a vicious cycle where you are short of money because a large chunk of your paycheck has been eaten up by your payday loan payment before you even get the check, requiring you to take out another loan to cover your expenses.
If you are considering payday loans because you don’t have any credit left, you need to reorganize your finances so that you can repay your credit card debt as soon as possible. The more credit card debt you pay off, the better your credit will get; in addition, you’ll have more credit available as you pay off the debt. If you’re already at the point where you can’t pay a card off in full, don’t use the card anymore until it is paid off. Pay as much as you can each month. You may want to consider making an extra payment in the middle of the month if you can afford it so that you can pay your credit cards off more quickly.
It’s a rare person who can get through life without ever borrowing money. However, you need to use credit and other loans responsibly to avoid financial problems. If you can be responsible with your credit, you can use it to help improve your finances instead of to detract from them.