Used wisely, credit is a powerful financial tool; but if used carelessly, it can lead to a heavy debt load. Whether you've accumulated debt or are considering credit options, understanding the essentials of credit and debt management will help you remain on solid financial ground.
Credit cards offer many advantages. There is the convenience of being able to buy needed items now and the security of not having to carry cash. You also receive fraud protection and in some cases rewards for making purchases.
With these advantages also come responsibilities. You need to manage credit cards wisely by understanding all of the card's terms and conditions; stay on top of payments; and realize the true cost of purchases made with credit. Using a credit card is like taking out a loan. If you don't pay your card balance in full each month, you'll pay interest on that loan.
The best way to maximize the benefits of credit cards is to understand your financial lifestyle - your money needs and wants. Once you determine how you'll use a credit card, it's important to understand all of the card's features including:
Some credit card issuers offer free, personalized and automatic alert messages to your phone and email to help you keep track of:
Understand Your Rights
Credit cardholders are entitled to protections:
Follow the 20-10 Rule
This general "rule of thumb" helps you understand how much credit you can afford. Credit cards are loans, so avoid borrowing more than 20 percent of your annual net income on all of your loans (not including a mortgage). And payments on those loans shouldn't exceed 10 percent of your monthly net income.