Using credit wisely

MichaelBeing able to borrow money when you need it can give you financial flexibility. But unless you’re careful with credit, you may end up buying more things, and spending more for them, than you would otherwise.

LuisThe key to financial freedom is living within your means. That means not borrowing more than you can comfortably afford to repay.

MichaelIf the amount you owe others is at an uncomfortable level, you’re not alone. Millions of Americans have spent too much on credit and then learned — the hard way — how difficult it can be to pay it off. Owing people more than you can repay is painful. And it can negatively affect your money situation for years.

LuisThat’s for sure. So how much is too much debt? In this lesson, we’ll tell you the warning signs to watch for and give you guidelines to avoid debt problems. We’ll also give you powerful tips for dealing with debt if you’re having problems now. We’ll also talk about bankruptcy and the impact it could have on your financial picture.

MichaelTo avoid debt problems, you need to use your credit wisely.

Tips for using credit wisely

Shop for credit
Shop around for credit cards with low interest rates and low or no annual fee.

Look closely at credit card offers that use the word “free.” Usually, everything has a price.

Avoid loans and credit cards with high interest rates.

Don’t take on monthly loan payments you can’t afford.

Plan your shopping
Don’t use your credit card to buy things you really can’t afford.

Let your budget be your guide.

Resist impulse buying!

Set limits
Don’t go wild! Limit your credit card use and don’t have too many credit cards. Stay within your credit limit.

Avoid having monthly credit card payments that exceed 10% of your monthly net income.

Do not let the total amount you charge to your credit cards exceed 20% of your yearly net income.

Keep track
Track your credit card charges throughout the month. Save your receipts and check them against your statement.

If you have Internet access to your credit card balance, track the charges made on your credit card online, before you even receive the bill in the mail.

Pay on time
Pay on time and pay off credit card balances monthly if you can. If you can’t pay off your credit card balance in full, try to pay more than the minimum payment. At the very least, pay the minimum payment every month, on time.

Get help early
If you’re getting in trouble with debt, get help early. Consider talking with a credit counselor — an experienced professional who can help you get out of debt.

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