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The Right Way to Use Your Credit

Since credit is so important to everything that you do, it is equally important to understand the right way to use credit. There are an alarming number of people who get a credit card and completely ruin their credit because they don't know how to manage the debt they have accumulated on the credit card. It takes a lot of time and effort to rebuild credit, and will cost the consumer more for goods and services due to higher interest rates and fees. 

One of the most common forms of credit that is extended is the credit card. It is a convenient payment tool, especially when looking at larger purchases. It comes in handy for tracking purposes due to the detailed bill every month, and many cards offer cash back rewards or points to be used towards airline tickets or other services. However, too many people confuse a credit card with having "extra cash" to spend. This "extra cash" is often spent on things such as vacations or emergencies when there should be a savings account in place for these types of expenses. A credit card should not be used for short-term cash flow problems because they only compound the issue by increasing stress the next month when other bills are due on top of the increased credit card debt. Many banks will also offer credit cards as overdraft protection, and it is best not to use a credit card in this manner. Like the vacation and emergency situations, everyone should keep a savings built up for overdraft protection.

What is a credit card good for? Credit cards should  be used for purchases that you are comfortable paying off at the end of the month. If you like to pay all of your bills on the credit card, and then send out one payment for the credit card at the end of the month, this can work as long as you can pay the card off at the end of the month. If you want to make a large purchase, and you know you will be able to repay it when the bill comes due, then the credit card comes in handy. If you want to track your expenses for a month and find the areas where you spend, then the credit card can help with that too. Many parents get their children a credit card while they're in college for emergency purposes. In this case, that is fine as long as the bill can be paid at the end of the month. The trouble here is that college students often view dining out the same as an emergency or become tempted to go shopping with the credit card. These unexpected expenses can really wreak havoc with the budget, so it is important to ensure that the student knows what an acceptable use of the card is before they receive one.

Avoid over extending yourself in payments. One idea is to keep your receipts with a running total. Determine an amount that is considered reasonable for your expenses and do not exceed that amount. If you do, then figure out where to cut back on the monthly expenditures. It is best to set money aside every month for expenses, such as vehicle maintenance and holiday gifts. This way you don't need to charge them. A final tip to help over spending on credit cards is to avoid places where you are tempted to spend money. To help you manage your overall debt, limit the number of your cards. It is much easier to manage debt with just a few cards, and this will save money in interest.

When it comes to using credit the right way, be sure to choose your credit carefully. Avoid certain types of credit, such as payday advance loans, title loans, and high-cost credit cards. On payday advance and title loans, interest rates can be in the triple digits. These types of loans tend to be ridiculously expensive and you pay more in interest than you borrowed. High cost credit cards tend to charge an annual and maintenance fee on top of 20% or more in interest. Fees and interest on all three of these can overwhelm you before you know it, ruining your credit.

If you find yourself in a situation where you have misused your credit card, don't beat yourself up about it. Just be aware of your habits with the card and try to curtail your spending. Make sure you make at least your minimum payments on time, but try to pay extra if you are coming close to your limit. Once you've gotten the card under control, avoid the situations that cause you to use your card so frequently. Following these tips will help save you money, money that can be put into savings for that vacation, or better yet, set aside for retirement.

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