Credit management is an important skill to have. Some people think that eliminating debt completely is the best way to keep it from destroying their financial position. That is further from the truth. Believe it or not, there are benefits to using credit. In fact, it can be said that any financial crisis should not be blamed on the debt itself. There is only one to blame for any financial crisis – and that is the borrower.
Americans love to use credit – this is why it is hard to completely eliminate its use. According to statistics, consumer credit increased by 5% within 2 years. You have to admit that it makes financial transactions very convenient. In fact, the use of credit cards gives our money a certain level of protection. When you lose cash, it will be next to impossible to get it back. But if you lose your card, you just have to call the creditor to have it frozen or canceled. That will keep the thief from using it. And even if they do use it, you will be given a chance to dispute the transactions. If you can prove that it was not you who made the purchases, then your finances would have been intact.
As you can see, it is not really fair to put all the blame on credit. That means it is not necessary to stop using it. The key to keeping debt from ruining your life is to learn how to manage credit. The effects would be more beneficial than the alternative.
Rules that will help you manage your credit
But how can you be good at credit management? This is not something that you learn to do overnight. However, if you practice enough, you will get used to it. The best way to start is by learning certain rules and following them strictly.
Here are the important rules that you need to get to know.
Include every purchase in your budget
Credit management, just like financial management will never be successful without a budget plan. This is why you need to make sure your budget is aligned with all your credit transactions. If you plan to use your credit card, make sure you have a budget for it. This will ensure that when the billing comes, you can pay the balance in full. In fact, any type of debt that you use, if you include it in your budget, should be safe. You will have the assurance that the money is available when you need to pay the debt back.
For instance, if you know that you use your credit card for clothes or groceries, compute the amount that you usually charge in your card. If it is $500 a week, make sure that is indicated in your budget plan. Before you borrow a loan, find out the monthly payments and put that in your budget plan. If your current budget cannot afford it, then getting a loan is not an option for you at this point. In case it is really needed, you might want to look at your other spending categories and see if you can cut back on some of them.
Monitor your credit use
Another rule that you need to follow is monitoring your credit use. You want to make sure that you know just how much you owe. If you know that you still have a high balance, you will be more careful when you use credit. It will keep you from borrowing too much money.
Apart from that, you will also benefit from guarding yourself against identity theft. Credit monitoring will not just update you of your credit transactions. It will also help you see if you are a victim of identity theft. According to reports, millions of credit cards have been stolen and the same is true for Social Security numbers. To ensure that you will not be a victim, you need to keep an eye on your credit report. Once you see something suspicious, you need to report it immediately.
Never max out your card
To be an expert on credit management, you should also be careful with your credit card balance. Credit cards are the easiest to abuse. It does not help that these cards are notorious for their high interest rates. To keep it from ruining your financial position, you need to make sure your credit card balance is kept low. Ideally, you should budget the purchases that you will make on the card. That way, you have the funds set aside for the bills. When you get the billing statement, you can immediately pay the whole balance. This will not only keep your credit card debt low, it will also help you avoid paying the finance charges.
Have a backup plan
Finally, you also have to make sure that you have a backup plan for every debt that you will borrow. You have to understand that things can always go wrong. It pays to have a plan in place so you will know what to do in case you cannot afford to pay your debts anymore. According to statistics, the delinquency rate of credit card debts has increased over the years. This is not a good sign. Most people borrow money because they are confident that they can pay it back. However, something usually happens along that way that changes their financial situation. It left them unable to meet their credit obligations. We do not know what will happen in the future but that does not mean we cannot be prepared.
To be good at credit management, you need to make sure that you are prepared for the unexpected. Create a plan that will help you keep your financial obligations even after you lose a job. You can also get to know the different debt relief options that will help you continue paying your dues despite limited finances. There are options like debt settlement or debt consolidation loans that can effectively help you get out of debt. Even if you find it hard to save enough money to have a huge emergency fund, simply knowing what you can do is better than nothing.
Why you need to master credit management
As you can see, being an expert in credit management is not that complicated. You just have to understand the rules that will help you develop the right habits. When you implement these rules, slowly but surely, you will start to get used to making smart choices when it comes to your credit behavior.
Once you learn how to manage it properly, you will find yourself feeling more confident in using credit. This is not something that you should take lightly. There is much to gain when you learn how to use credit properly and be successful at it.
For instance, you can use debt to buy a house and increase your net worth. While it is a huge debt, every payment will go to the equity of the house. Since the property appreciates over time, it is actually a great investment for you.
A business loan is also something that you can use to improve your financial position. Instead of working for someone and helping them get rich, you can build your own business and be your own boss. More than that, all your efforts will be towards making yourself wealthier.
Another debt that can help you are student loans. Improving your knowledge and skills will give you the leverage you need to ask for a higher pay.
Of course, using credit would also mean you can improve your credit score. At least, if you become an expert at credit management. Debt is only beneficial if you know how to use it well. That means borrowing the right kind of debt and knowing how to pay it back.