Proper Credit Card Debt Management
"Driving screws with a hammer"
Proper Credit Card Debt Management
So do you know how to use a credit card? “Sure, you just get what you want and hand the cashier the card and you got everything you need.” Once again, an actual conversation that took place with a credit counselor. While it may seem funny, it is sadly, all too common. The truth of the matter is that many individuals do not even know how to properly manage their credit card debts.
While the answer may be correct in the very literal sense of the word, it is neither a good answer nor even a complete one. Credit cards can and should be used on a regular basis. One of the many benefits of proper debt management is the establishment of good credit which will allow you to expand your financial potential. Credit cards are an integral part of the equation and care should be taken to learn how to properly use these tools of debt management.
Driving screws with a hammer
You can try all day long to hammer screws into a piece of wood. You may even be able to drive in a few successfully. However, chances are better than not that you are going to fail more than you ever succeed. That is because, while you may have all of the proper tools, you are not using them in their prescribed method towards the optimum outcome and reaching the desired solution.
Hammer the nails and use the screwdriver for the screws. It sounds pretty obvious doesn’t it? Yet when it comes to debt management, people constantly try and use their tools improperly. Many are not actually trying at all, they simply do not know how to use or even what the proper methods are for using the tools that they already have.
Credit cards are a tool. They have to be used properly if you want to get the desired results from them. While it may seem that the desired result is getting whatever you want right now without worrying about tomorrow; that is not the way to get anything done that will last for any length of time. If that is what you want to do, you may as well figure on losing everything now and save yourself some aggravation by giving away everything that you own right now.
The desired result is to use the cards in such a manner as to optimize the effect it has on your own personal debt and financial considerations and allow you to work your way into a position where you can do just about anything that you ever wanted. From buying a home to getting that car you always wanted, to starting the business you always knew would make you rich; none of it can be accomplished until you learn how to manage your debts.
Credit cards should not be used to buy all of those nice things that you think you wanted but will only sit somewhere getting old without providing you any value for your dollar. Credit cards are not for impulse purchases or for using to buy that special someone all of those things that you could never afford for them before. Credit cards are not something that have to be used simply because there is still a remaining balance on the credit limit.
Learning what not to use the credit card for is actually probably quite a bit easier than learning what to use it for. Still, it is necessary to look at all sides of any issue and such is the case here as well. If the credit card is not intended for all of those things that you always thought it was, what is it intended for?
The credit cards should be used for bills that you otherwise would be paying cash for. Some examples of this are your groceries, gasoline and other expenses which occur in the every day course of your life. While this may seem anti-climactic to some people, it is the quickest and easiest way in the world to maintain debts which are manageable and also to establish or even to reestablish a good credit rating and expand your credit limits.
The money that you would otherwise be spending on these items should stay in the bank. Just because you buy your groceries in the first week of the month and have not paid the bill yet does not mean that you will not have to pay the bill at all. You are just going to go about paying it off in a different manner.
Keeping the money in the bank rather than using it for other purposes will insure that you still have enough money to pay the credit card bill in full at the end of each and every month. In this manner, you will quickly develop better than average credit and avoid almost all of those outrageous interest charges.
You should already have the majority of your expenses listed on your budget. As you make the actual purchases, revise your budget to accurately reflect the exact costs rather than the estimates that you began with. As the month nears its end, you will begin to see the numbers matching up and giving more of an accurate picture of exactly what has been spent.
Good record keeping will also allow you to go through your original budget and all of the revisions and see which estimates you are closer with and which estimates were way off. If your estimates are fairly close to accurate, you are likely doing things correctly and do not need to change anything.
If however, your numbers and estimates are off by more than a margin of ten percent, you need to review those sections and figure out why. If the numbers of your estimates are constantly off by large percentages, you need to rethink your budget and figure out where you are going so wrong.
Either way, at the end of the month your credit card estimates should closely reflect the amount you have spent on daily use needs and normal cash purposes. These will likely include the purchases you have made for groceries, gasoline and other needs that need to be subsidized or replenished on a regular basis.
If you use your credit cards strictly in this manner; you can assure yourself that you are building your credit as quickly as possible. At the end of the month when the credit card bills arrive, make sure to pay the balance in full. Since you have been wise and left the cash that you would have normally spent on these items in the bank, the only difference now is that you will need to write a check or purchase a money order to pay this debt.
As has been well noted here, using your credit cards properly to incur good debts and thus establish yourself financially is the quickest and easiest way to build or rebuild your credit rating. There are even other benefits that have not been examined closely yet.
