Using credit wisely

Your guides talk about avoiding too much debt.

CarlosBeing able to borrow money when you need it can give you financial flexibility. But if you’re not careful with credit, you may end up buying more things, and spending more for them, than you would if you paid in cash.

OliviaSo watch out: owing more than you can repay is painful. Having too much debt can damage your money situation for years.

CarlosThe best defense is to avoid too much debt to begin with. Otherwise, like me and millions of other people, you’ll have to learn the hard way how difficult it can be to pay it off.

OliviaWe don’t want it to happen to you. We’ll give you the warning signs of too much debt and some guidelines to avoid debt problems. We’ll give you suggestions for dealing with debt if you’re having problems now.

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! Don’t exceed your credit card spending limit and try to keep your balance 70% or less of your limit. Avoid having monthly credit card payments that exceed 10% of your monthly net income. Don’t let the total amount you charge to your credit cards exceed 20% of your yearly net income. Maintaining a number of credit accounts over a long period of time can actually improve your credit score — but only if you limit your credit use.

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, pay more to your high-interest accounts every month while paying at least the minimum to lower-interest accounts. At the very least, pay the minimum payment to every account, every month, on time.

Contact your creditors
If you can’t pay the minimum due on your credit card, call your creditor and ask for an extension or to set up a payment plan. Try to have you APR lowered, too, which may reduce your payment. If nothing can be done, look for money in your overall spending plan that you can put toward your payment.

Get help early
If you’re getting into trouble with debt, get help early. Contact your lender. Try to work out a repayment plan that works for both of you. You may also want to consider talking with a credit counselor, an experienced professional, who can help you get out of debt.

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

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