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Credit cards can both be a bane and a blessing. It becomes a blessing when you are into emergency situations without cash and you need to pay off a needed obligation immediately. It becomes a bane when interest charges pile up and you have maxed out your credit limit. Getting your first credit card can be one of the most exciting moments in life. The temptation is there to splurge shopping for things you couldn’t afford before. It can be quite difficult and requires discipline. Bear in mind that your fist credit card is your first step to building a sound credit history. And it’s quite difficult to go back and correct a credit misstep. So how do you use your credit card wisely? It takes prudence and a little financial planning. Budgeting is the better word. The first rule of thumb remains: Never spend more than what you earn. Having a credit line offered by your credit card is no excuse to spend more. Without a credit card, the only way to spend more is to save up and spend it at a later date. A disposable income saved over time allows you to do that. A credit card in your hands only allows you spend that amount today by giving you credit. That means you are essentially borrowing money from your credit issuer. And you will still pay for that with interest. It’s the interest than will give you headaches later on. It is always a good idea to pay off your monthly credit card bill in full and on time. Failure either way will incur interest charges. Credit cards allow deferred or partial payments which range from 3% to 10% of outstanding balances. This adds to the attraction of owning credit cards. It can make your monthly load lighter but in the long run, you will have financial problems meeting those obligations especially when you have maxed out your card. Having a working budget helps. Simply take your monthly take home pay and subtract your anticipated monthly expenses. The difference is your disposable income. That’s the amount you need to consider when making credit card purchases. Is your disposable income sufficient to defray paying the full amount on your credit card statement? It is no different from spending only what you can afford per month. A credit card allows you to exceed your disposable monthly income. You basically borrow the excess from your card issuer. But just because you can doesn’t mean you should. Having that mindset prevents you from exhausting your credit limit which effectively negates what having a credit card is for. Bear in mind that maxing the card discourages loan companies from extending home and car loans since your credit line is used as a factor in gauging your loan eligibility. While it may be prudent to refrain from using credit cards except in emergency situations, you should use your credit cards regularly to demonstrate how well you pay them off so you build a sound credit history. A good credit history lets your credit issuer increase your credit limit as well. As long as you spend prudently, there’s no reason not to use your credit card.
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