Good Credit Advice – How to Stay in the Green

A credit card is the first financial tool that can ruin or build your financial future. For instance, every time you default on paying your credit, it is noted in your credit score file. A bad credit file means new credit will be hard to come by.

When you pay your debts on time, you build your credit history. This means anytime you need another credit card or loan, the issuing companies won’t have any reason to doubt you because you have proved you can handle credit.

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Most credit companies should advise you on the different types of credit cards they offer. Let us tackle in detail good credit card advice you should receive before you acquire your first credit card.

Good Credit Advice - How to Stay in the Green
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Income

You will need to consider your income before you apply for a credit card. There is no use in acquiring a credit card limit that is much more than your monthly income unless you only use the amount your income can afford.

If you spend more on your credit card then you make, you’ll always push forward a debt because your income cannot sufficiently pay for it. This will keep you in constant debt. This is especially true for students and low-income earners.

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Therefore, as a student don’t rush into applying for any credit card. You need to consider student credit cards that have low-interest rates. Also, watch out for annual fees, if you don’t use a card that often, you shouldn’t be paying annual fees.

Timely Payment

One of the best practices of effectively using a credit card is timely payment. Every time you miss a payment or postpone it, you get charged a late fee and interest on whatever you owe.

This may seem a small amount but can accumulate so fast. If you can, pay your credit card in full. However, if you cannot pay in full, at least pay the minimum monthly payment.

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Some companies might lower your credit limit, increase your interest rate and late fees charges if you don’t pay on time. Also, remember late payment lowers your credit rating which will affect your ability to get a loan in the future.

Interest

Different card companies charge interest differently. In case you pay more than half of your credit card bill, some companies might charge interest on the balance while others charge interest on the whole amount.

Therefore, ensure you understand the terms of your card before you get it. Interest fees also tend to accumulate fast. If you can avoid them, it will help you keep out of debt.

Avoid the Minimum Payment Trap

Usually, the minimum amount on your card is quite small and it’s so easy to ignore the balance and pay only that amount. However, know it’s a trap that will cost you heavily in the long run.

Remember every balance on your card is charged late fee or interest, depending on the company. If you calculate how much you pay in a period of, say 10 years, it will be a lot.

Our advice would be you endeavor to pay your card credit in full every month. When you do this, you get to enjoy the interest-free time.

Good Credit Advice - How to Stay in the Green
photo credit:ecaformacion.com

Emergency Fund

If you can, set aside an emergency fund. It is bad practice to use your credit card to pay hospital bills, insurance and other emergencies.

You can deplete your card funds so fast and remember you’ll need other necessities like water and food that you cannot do without.

You might end up borrowing some more which will throw you in a deep financial debt that you might spend years repaying. 

The Bottom Line

A credit card is an important financial tool when used well. It will help you afford food, water and other necessities in times when you don’t have cash. However, misusing a credit card can land you in major debt.

No one wants to spend years repaying an endless debt. Endeavor to read and understand your credit card terms and conditions plus policies before signing that agreement. Also, spend only what you can pay back every month.

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