Photo courtesy of _neona_
Credit cards have been a major contributor to the current economic crisis. Currently, there has been a great deal of media coverage focused on the investment houses along with the savings and loans sector. The auto industry has jumped on the bailout bandwagon and wants a chunk of money as well. Credit card problems have taken a back seat in the major media outlets. I believe this will be a major issue after the dust settles on the current hot economic issues. This also affects each one of us directly.
There are many ways to properly use a credit card. Credit cards can help you make purchases and to enhance your finances. I will review five tips for making your credit cards more useful. Just as food diets are guidelines to make your body healthier, a credit card diet is a set of guidelines to help you keep your finances healthier. These are not rules that you must follow, and you should take your current financial circumstances into consideration to properly use all these tips.
1. Set A Budget
Above all else, knowing how much income you bring in, versus the expenses you pay out, is the most important point I want to make. Credit card limits are helpful by limiting how much you can charge. Whatever your credit limit is, you should never max out your credit cards. Doing so is bad for your credit history, not to mention your savings account. Knowing how much you can spend ahead of time will help you make proper purchasing decisions. If you come across a new gadget that you want, you should ask yourself if it's within your current budget. If not, perhaps its time to save up some money for the item, which is something you should be doing.
2. Buy Only What You Can Afford
I've been wanting to buy a large flat-panel LCD television for some time now. I'm thinking about a Sharp, Samsung, or a Sony flat-panel, but I still have not bought it. Though I can afford to buy the item now, I often ask myself if it is the best time to buy it and due to the current economy, I think I will hold off. Buying only what you can afford may sound easy, but many people do not practice this when they use a credit card. If you knew what your savings are and tracked your expenses properly, you will know if you can afford something right now or if you need to wait another month. As much as everyone wants an iPhone the day it comes out, it pays to wait a month or two. Many people found out this lesson the hard way during the previous iPhone release. Waiting for the product you want to come down in price, and saving up for it during that waiting period is a great lesson we should all teach our kids. The best way to teach our kids or anyone for that matter, is to practice it on a regular basis and make it into a healthy habit. If this is not a problem for you, I'm glad you have a good habit of saving up for your purchases.
3. Track Your Spending
I used to track all my spending, religiously. This was after reading some tips about how it can make your finances better. All it did for me was just create more work. That's because I was not doing it with a goal in mind. Today I track only my credit card purchases, and the goal is to match it up with the monthly statements. Once I do this, I start fresh for the next month. One great thing about some credit card companies is the way they send you a year-end summary. This summary helps you track your spending during the previous year and it helps you set up a new budget. Aside from the yearly budget, you should always check your monthly statements. It is very helpful to track your purchasing patterns and to use it to adjust your spending habits accordingly. Above all else, when tracking your spending - have a goal in mind, doing so without a goal is futile.
4. Know What You Need To Buy
When I head out shopping or if I do so online, I usually get it done faster if I know exactly what I need to buy. If I head to the supermarket, I make a grocery list. If I am heading to Best Buy, I make a list of electronics, DVDs, software or anything else I want to look at or evaluate. Without that list, I will end up spending hours at a time, and usually end up with something I don't like or something I didn't want to buy initially. The same can be said when shopping online. As I mentioned in my previous post, how to talk yourself out of any purchase, you should ask yourself the proper questions before you make a purchase. My best advice on this is to make a list and check it twice, like santa does!
5. Lower Your Credit Limits
For many people, having a credit card is like being given a genie. It grants your every wish, well almost every wish. You have a limit to what you can wish for, which is established by your credit limit. Knowing this fact, it's a good idea to lower your credit limit if you have a problem with using your credit cards above what you can afford. It's easy to lower your limit, just call your card company and ask them to do so. Setting this limit to your monthly budget should help you get into a good habit of buying what you can afford.
I hope you will put my tips above to use and improve your finances and credit card habits. Above all else remember to set a budget, buy only what you can afford, track your spending, know what you need to buy, and lower your credit limits. Having said all this, I'm sure many of you have your own tips and tricks to using credit cards to enhance your finances. Please share your thoughts in the comments. I hope you have enjoyed this post. Thanks for visiting. Follow me on Twitter for additional links to Frugal tips and tricks. If you would like to contribute to Frugal NYC in any way, articles, ideas, posts, interesting links, advice, financial assistance, or anything else, feel free to contact me via email. Click here to add this to your RSS reader.