It’s a long-held myth that credit cards are the source of all evil because they nurture the inner shopaholic and help us incur debt. However, used responsibly, credit cards can actually be very helpful.
Credit cards are convenient. They can be used practically anytime and anywhere. They come with exclusive discounts, cash dollar rewards, online booking, and more. The perks vary with the source. For example, some health insurance companies have even issued their own brand of credit cards, covering free health exams every year.
Possibly the biggest benefit of a credit card is having the ability to pay in installments for quality items that people could not otherwise afford. It is designed to be short-term credit for items too large to easily be in a person’s monthly budget. Credit cards should not be used as a free ticket to buy everything you can’t afford to pay for outright. That’s a sure way into debt. But some people find some purchases necessary enough or special enough to be worth the cost of interest payments.
Credit cards also have benefits aside from short-term gratification. In the long term, credit cards can help build credit history and raise credit scores. Of course, that’s only if you make your payments on time and don’t charge up to the maximum limit. Having a good credit history will enable you to qualify for important loans in the future. Your debt-to-income ratio and good payment history shows future lenders your pattern of responsibility and on-time payment behaviors. In responsible hands, the credit card can serve as a symbol of responsibility and maturity. A good credit history can enable you to take out a future business loan if you choose to go into business for yourself, or help you obtain a good mortgage loan on the home that you’ll get to enjoy with your family.
Though credit cards have both short- and long-term benefits, they need to be handled carefully. Everyone should have a budgeting plan for their credit card payments. Here’s one idea that might help keep credit card spending as part of your overall budget: Think of your credit card as a “debit-credit card.” Separate a certain amount from your budget, say one-third of your income, in a separate account to act as a self-imposed credit limit. Then, each month, once you’ve passed that limit, don’t use the credit card anymore during that month.
Please note: If you use credit cards you’ll end up with a significantly smaller amount of your salary every month, since you are going to need to spend some of your income on credit card payments. Still, credit cards give you a flexibility you couldn’t get from cash. In case of any emergency, after savings, credit cards can be the first to help! Here’s the bottom line: Do own a credit card. And if you’re not completely certain that you can clear the balance each month, stick to the debit-credit card rule!
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