Notice the word used ‘big’ instead of ‘best’? Well, credit cards can be the best tools as well. That, however, depends on how the little plastic card is used.
From zero-interest introductory rates, to cash rewards and often rising (and generous) credit limits, we share an almost cozy relationship with what’s essentially debt.
We forget in our excitement: whatever we buy through a credit card has to be paid back, often with interest!
Yes, credit cards are good tools – provided it’s used in a responsible manner. Even a slight mishap with credit card expenditure is enough to derail you for a long time. You do not want to swim in credit card debt for the rest of your life. Following are helpful tips to keep in mind:
Set Your Own ‘Maximum Balance Limit’
It’s easy to go over-board with credit cards if you don’t have the required discipline to stop spending when the balance limit (assigned by the card issuer) has been reached.
What happens when a credit card limit maxes out? The line of credit will become a liability that has to be paid no matter what.
What Can Be Done: Make sure to set your own credit card limit that’s much lower to the limit assigned by your credit card issuer.
Don’t Mistake Your Credit Card as Emergency Fund
Most people rely on their credit cards to act in lieu of an active emergency fund. While credit cards can be used in emergencies, assigning unused credit as your unofficial emergency fund isn’t a good idea – especially if your idea of emergency vastly differs from the real meaning.
What Can Be Done: Remember, the credit you receive from credit cards aren’t savings and can never replace the necessity of a true emergency fund. Make it a point to keep a certain amount aside every month or open an emergency fund account.
This is the most acclaimed and widely given advice. As a credit counseling service in Toronto, we have to state here, that this is also the least followed advice.
There are many reasons why credit card counselors advise consumers to pay off the complete balance every month. When the full balance is paid, you won’t face exorbitant interest charges.
What Can Be Done: Keeping a reminder on your phone will help you to pay the full balance at the end or start of every month. You can also make an arrangement with your bank to pay off credit card bill, automatically.
Spend your credit card responsibly and you’ll always stay afloat. If you still find yourself floundering, we, at EmpireOne can help, providing you with effective credit counseling in Canada.