Credit cards can be a great tool. They allow you to earn rewards for your routine expenses. They can also help you build a positive credit history, provided you pay your bills on time and don’t run out of cards.
Unfortunately, if you get a credit card before you are financially ready, you can run into serious financial trouble. And there are three major signs that could suggest that you are not in the right position to use a credit card responsibly. Here is what they are.
1. You don’t have a budget
Credit cards can work well for you if you always pay your bills on time and in full each month. The payment history you develop can help you improve your credit score. And you can earn credit card rewards without their value being overshadowed by the expensive interest rates normally charged when you have a balance.
Unfortunately, when you’re on a budget, making sure you aren’t spending too much on your cards can be difficult. It’s just too easy to reach out and top up items without first checking if you can afford it.
However, once you have a budget and know your spending limits, you can ensure that you are not asking for more than you can easily pay back. This way, you get the benefits of a card without the disadvantages of paying costly interest fees.
2. You live beyond your means
If you spend more than you make, you can have a serious financial problem. And credit cards can allow you to land in a bigger hole.
You could quickly find that you are digging way too deep when you have a credit card that you can use to bill for purchases you cannot afford. And in the end, the interest only makes every purchase more expensive.
Getting a credit card without having control of your spending could also make it a lot harder for you to live with your funds later on. That is because you are placing your future paychecks on paying any credit card debt you incur today.
Unless you are in control of your finances and are spending less than you regularly earn, stay away from credit cards for the time being.
3. You don’t track your expenses
Because you want to make sure that by the time your credit card bill is due you can pay for whatever you charge, it is helpful if you are already used to keeping track of your expenses. If you monitor where your money is going and are on budget, you won’t be surprised by your credit card statement every month. Keeping track of things can be difficult. So check out the best budgeting apps if you need a little help or just want a tech-friendly way to keep track of your expenses.
If any of these warnings apply to you, it doesn’t mean you will have to go without credit cards forever. It just means that if you want to reap the benefits of credit cards, you first want to commit to living on a budget, spending within your means, and tracking your purchases before making them. These are good financial habits anyway, so use your desire for credit card rewards and perks as an incentive to inspire you.
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