Managing Credit Responsibly

The day your first credit card arrives in the mail can feel wonderful. You’ll get a sense of freedom, possibility and promise. After all, the world is now your oyster. You can get just about anything you want, even if you don’t have the cash to pay for it right away. But be warned – that joy can turn into pain if you don’t manage your credit responsibly.

Read Terms Carefully

When you apply for a card, take some time to read the agreement carefully. Pay close attention to the length of the billing cycle, the due date, the interest rate and how fees are calculated. What are the consequences of making late payments? What will happen if you go over your limit? How is the interest rate calculated? Compare credit card offers to find terms most favorable to you, rather than accepting the first random offer to appear in your mailbox. Agreements vary, and some will cost you more than others.

Mind Your Means

Just because you can get anything you want (up to the limit of the card) doesn’t mean you should. Having the ability to leverage your income can tempt you into buying things you don’t really need. Meanwhile, the interest rate on a credit card can be 20 percent or more. Avoid making purchases outside of your ability to pay in full within the billing cycle of the card. In other words, if your salary wouldn’t let you pay for it over the course of a month, you shouldn’t buy it with your credit card either. The item will become more expensive when the interest begins to accrue.

If Trouble Happens

Sometimes, despite your best efforts to live responsibly, things can get out of hand. You could suffer an injury and incur sizable medical expenses. A layoff could put you out of work and inhibit your ability to pay. Ideally, you’ll have an emergency fund saved up to help you deal with these situations.

But sometimes that won’t be enough. And you’ll find yourself in deep debt.

If it happens to you, working with a company like Freedom Debt Relief can be a good option. Organizations like these may get your credit card debt reduced to a more manageable amount so you can pay it off in full. Another possibility is combining all of your debt with a loan from a company like Consolidation Plus (although this service is invitation-only). Services like these can reduce your overall monthly payment and make your debt load easier to carry.

Always Pay on Time

Many credit card companies operate on a 28-day billing cycle—not 30 or 31. Take care to know exactly when your due date is each month and get into the habit of paying off your balance before that date. Yes, credit card companies will sometimes grant you a grace period after your due date, but it’s usually only a one-time thing. After that, you’ll incur late fees in addition to the interest. These can combine to make your balance grow very rapidly.

Pay in Full Each Month

A credit card can be a tool or a trap. It all depends on how it is used. If you limit your purchases to amounts you can comfortably pay off each month, you can get items before you have the cash to pay for them. However, whenever possible, you should save to make those purchases so you can live interest free. If you do need something immediately, make sure you can afford to pay it off before the billing cycle ends and you have to pay interest on the purchase.

Similarly, keep track of your credit card spending so you know exactly how much you need to pay it off each month. In other words, treat your credit card like a checking account. Make note of each purchase and reconcile your statement at the end of each billing cycle. Said simply, managing credit responsibly is simply a matter of paying attention—so you won’t need to afford the consequences.

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