Credit cards are a necessary evil for most consumers in the American economy. Until recently, credit cards were dangerously easy to come by, with free cards mailed to homes across the country by leading credit companies, enticing people with no interest periods and alluring rewards packages. The ease with which people attained credit cards proved to be a major problem for less frugal consumers, so much so that the majority of Americans continue to carry significant credit card debt well into the 21st century. But with recent legislation passed to better regulate banks’ credit card rates, consumers can use credit cards with much more reasonable rates. Credit cards have become a less dangerous method of spending, as long as consumers temper credit card usage with common sense and fiscal responsibility. You can avoid high interest rates and unwieldy spending if you plan correctly before and after you obtain a credit card.
Identify your spending habits
Before you even consider applying for a credit card, take stock of your personal finances and consider the impact using one would have on your life. For example, if you’re an impulse spender with a penchant for spending beyond your means at stores and restaurants, you might consider a credit card with a low spending limit so as to limit future purchases. Review your spending history over the past month or two and use that as a point of reference when shopping around for suitable credit cards.
Set a manageable budget
Part of having a healthy relationship with your credit card involves understanding how it fits in with your budget. If you manage your finances well enough without a credit card, you might be tempted to use the card on frequent recreational purchases. This isn’t to say that those who enjoy financial stability couldn’t benefit from the use of a credit card. Your credit rating will improve dramatically if you use a credit card sparingly while making regular payments every month. The better your credit rating, the more likely you can qualify for big ticket items like a loan for a house or a car.
If drawing out a pen-and-paper budget for your expenses seems like an outdated task, consider utilizing financial planning software to calculate your expenditures. For instance, Mint.com offers free, secure financial planning and management for your all your financial needs. The service will tabulate and categorize all your expenses, provide an estimated budget, and even recommend credit cards that would work well with your spending patterns. Services like Mint could be instrumental in organizing your finances before and after getting a credit card.
Know when to stop
Credit cards can definitely help a consumer in a pinch, but they can quickly turn from saving grace to financial crutch. If you notice that your credit card bills increase with each passing month, take charge of your debt and cut the card before you accrue further charges. Irresponsible credit card users treat their debt like a gambling addiction, telling themselves that on the next payment things will be different when they will only spiral further down an uncontrollable spending habit. Don’t let yourself become a victim of your own spending habits. You can control them to an extent by decreasing your spending limit on a card, but if all else fails, cut the card and pay your bill as soon as possible.
Mariana Ashley is a freelance writer who particularly enjoys writing about online colleges. She loves receiving reader feedback, which can be directed to mariana.ashley031 @gmail.com.