Getting your first-ever credit card can seem like an irresistible offer for going out and spending money, but that itself is a bad idea. If you don’t limit your shopping and expenses, you’ll be in credit debt.
According to research, an average American’s credit card debt is around $5525, which is a pretty huge amount. Here are some practical ways to manage your credits efficiently to save yourself from credit debt.
1. Live within your means
The most important point is first to understand what you can and can’t afford. Always see if the items on your wishlist are affordable or not. Living within your means will ensure that you always spend just the right amount and not more than that.
Even when you buy on credit, it’s necessary to only purchase things that won’t let you end up in financial trouble. You’ll want to be able to afford the loan payments. So before buying anything with your credit, save up for it first so that you can pay off the balance.
2. Track your expenses
The next most important thing is to keep track of your expenses. Maybe you’re buying all the items that you can afford, but the frequency of spending is over the limit.
This will again cause a problem. Therefore, keeping a record of what you’ve bought and the amount required to purchase it can let you know how much more money you can spend later. This way, you’ll be much less likely to overdraw your bank account.
3. Chalk up a plan
If you have a plan for your cash, you should also have a plan for your credit cards. Budgeting your money will also help cut down on many costs and pay off your loans quickly.
4. Make payments on time
One of the worst ideas is to keep putting off your bill payments. Your payment history is the most important factor that determines your credit score. If you have a bad credit score, you’ll have to go through many financial hassles later on.
If you apply for a loan later, the interest rates will shoot up, or you might not even be allowed to take a loan. So always remember to pay your bills on time or before that to have a good credit score.
5. Keep the debt levels low
Taking a loan to buy a house or a car is understandable. But if you keep taking loans for every purchase you make, your debt levels will be sky-high. Then it will be extremely difficult for you to repay these loans.
So it’s always a good idea to keep these debt levels low. Only take a loan for a big purchase you cannot afford to pay at once. Your total debt payments should ideally be less than 36% of your monthly income to have a good credit score.
6. Don’t close your old accounts
Sometimes it might be tempting to close the old credit accounts. But the length of your credit history is important here. At times, longer credit history can lead to a better credit score.
This will give off the impression that you are efficient and responsible. A big part of managing credits is ensuring your credit score keeps improving.
7. Have many types of credit accounts
Often, lenders like to see what kind of credit accounts you have before lending you money. If you have a proper mix of both revolving and installment accounts, you’ll be preferred. Installment accounts refer to loans and mortgages on cars or houses.
They will show that you have made sure to pay off the loans on time. Revolving accounts, like credit cards, will show that you are responsible enough not to spend over the credit limit.
8. Consult your bank
If you need more tips on managing your credits properly, your bank will be able to help you out. They will show you how to deal with things like credit mediation debt negotiation.
Nowadays, almost every bank conducts seminars or workshops to make their customers more financially literate. So you can always attend those.
Having an efficient system of handling your credit cards and debts will save you from a lot of financial problems and help you become a mature individual.
