How can you become a smart credit consumer?
We have all accepted that it’s difficult to eliminate the use of credit in our society. It’s just too convenient to use. Not only that, the existence of credit scores makes it even more complicated. You need a good score to enjoy certain benefits in the financial industry.
But that’s not all, you have to admit the use of credit does have it’s benefits. Apart from the convenience, it does provide a certain level of security that’s not available in other payment options. Like if you lose your cash, it’s less likely that you’ll get it back. But if you lose your credit card, you can just call your creditor to freeze your account. That way, whoever has your card can’t use it.
Despite these benefits, we can’t ignore the fact that debt, especially those from credit cards can be destructive. It has a high-interest rate that can quickly make your balance grow. And with Americans owning an average of 4 cards each, the temptation to use it is very high. That can leave a lot of consumers vulnerable to having a huge debt.
So if we can’t remove the use of credit entirely, what can we do to make sure that we don’t end up with a huge balance?
You have to be a smart credit consumer.
3 ways to be a smart credit consumer
What does that mean? It means you have to learn how to use credit to buy consumer goods without ending up with a high credit card balance.
This is not impossible to do. But you may have to implement some changes in your life to make it happen. If you’re serious about becoming a smart credit consumer, here are three things that you can do?
Avoid carrying a credit card balance
Start by monitoring your credit card balance. Be aware of your credit card limit. Make sure that you will never reach that amount. It’s not only going to make you pay a huge interest rate. It will also lead to various charges and penalties. So make sure you set strict rules about how you’ll use your card.
One of the rules that you should use is to pay your bills in full. If you really want to use your card, you have to be ready to pay that off in full when the next billing statement comes. Or if you can pay it before the due date (which is the grace period), you won’t have to worry about the interest on that debt. When you pay within the grace period, you only have to pay the purchase price of what you bought. There will be no finance charges.
This is what you should get used to if you want to become a smart credit consumer. This will help keep your balance low and will keep you from accumulating a lot of debt.
Pay your debts on time
It’s also very important for you to be responsible for all your debt payments. It’s not the credit card company’s job to remind you of your dues. You have to monitor it yourself.
After all, being a smart credit consumer means you are aware of all the expenses you’ve made. It means you are not spending recklessly. That means you should also be aware of when your due dates are.
Of course, you don’t have to make things hard for yourself. If you’re too busy with work or life in general, there are ways for you to avoid missing out on a debt payment.
For one, you can set up reminders a few days before your due date. You can set up an email notification or an alarm on your mobile device. That way, you can prepare the payment before the actual due date arrives.
Auto debit or auto payment is another option. This can be arranged with your bank. It’s not ideal for credit cards though. It’s best for debt payments with a fixed monthly amount.
Use only 30% of your credit limit
Finally, if you want to become a smart credit consumer, you have to know what your credit card limit is. This will be your guide to make sure that you won’t go beyond your budget. But keep in mind that you should keep your balance within 30% of the total limit. So if your overall limit is $10,000, keep your debts $3,000 or lower.
For the most part, this 30% limit is to help you maintain a good credit score. But that’s not the only benefit. Keeping your balance low will also ensure that your monthly payments will be affordable. That way, you won’t have to worry about missing out on a payment.
The question is, how can you maintain a low balance?
Simple. Plan how you’ll use your credit card. Make sure you go on every shopping errand with a list. If it’s not on your list, don’t spend on it. If you can wait, it’ll clear your mind to determine if the expense is a necessity or not. This is a great habit to have if you want to become a smart credit consumer.
Why you should be a smart credit consumer?
Why is it so important that you become smart with how you use credit?
There are two important reasons why.
To stay away from too much debt
This is the most obvious of the two reasons. If you can be smart about how you’ll spend credit, you’ll be cautious of your balance. You’ll know when you should stop using it. Especially if you notice that your balance is already high. If you don’t want your credit to compromise your finances, you’ll know when to control your spending.
A smart credit consumer knows that having too much debt will compromise, not just the present, but also the future. So if you want to set yourself up to have financial abundance in the future, you need to make sure you can keep a lid on your debts.
To maintain a good credit score
Being smart about how you use credit will also lead you to have a good credit score. One of the benefits of having a good score is you qualify for a low-interest rate. That would make your payments lower compared to having a high-interest.
You have to take the interest rate seriously because apparently, the average American pays $1,045 worth of interest every year. Imagine how much money you’re wasting because of credit. That money could have become a huge amount if you put it somewhere it can grow because of compound interest.
So consider that every time you feel like taking care of your credit score is a waste of effort. There’s a lot to gain if you maintain a good credit standing. It opens a lot of doors and access to various financial products and opportunities.