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How Much Credit is Too Much? |
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by: Debbie Dragon
To the wise credit consumer, the proper use of credit cards requires constant evaluation. One can get in over their head very rapidly. Which begs the question: how much credit is too much?
When considering the use of credit as a way of financing purchases one must first examine their budget in order to determine whether or not timely payments can be made on the account. To be able to pay off the balance every month on your credit card accounts is the best policy and it will ensure that you do not get hit will extra fees and penalties for not doing so. However, most credit card holders do not operate in this manner.
A common rule of thumb is to keep credit payments from taking over 20% of your gross income. Now, that being said, the amount of credit taken out to equal payments of 20% depends on interest rates, etc.
The question of how much credit is too much is really a part of a larger discussion of the part that credit plays in your financial picture overall. That discussion must include a personal determination not to let credit rule your finances, but rather, you set the rules for credit and make it work for you. If you are successful in this type of environment, then chances are higher for you to take control of your credit cards and not get caught in their tenuous grip.
Even so, the unexpected events in life that arise and cause financial stress are sure to come. If you have a plan for how to handle these with respect to your credit, then you will be able to weather these “storms.”
Before taking on significant amounts of credit, build up an emergency fund of cash that is easy to get to in order to be able to make payments on time for your credit accounts. You will find this cash fund handy for minimizing the negative effects of life’s little surprises. For example, the washer that breaks down, the car that needs tires, or other such unexpected financial need. They happen all of the time, why not plan for them? How will this help with your credit card situation? You will most likely be better able to continue to pay your balances on time with an emergency fund in place.
An emergency fund should be between $1,000.00 and $1,500.00 in cash. Since it should be immediately liquid and available it is wise to place this fund in a secure location in your residence. Any safe or other location that is secure will do. The existence of this fund must be protected in order to keep it secure. The fewer people know of its existence, the better.
Balance transfers and introductory rates are a great way to reduce fees and interest paid to credit card companies. But it also forces you to keep track of what balance is where and how long you have before the zero percent rate ends, etc. It can become a nightmare to manage even with just a few cards.
Those who are good at handling their finances and have a budget will be better at handling credit as well and avoiding the pitfalls. You must make time to constantly review your status with regard to balances and payments in order to stay atop of the game. Making this a part of your normal routine will keep the credit issue at the forefront of your financial thought process. And it will be a more enjoyable experience rather than a monthly annoyance. Remember, the proper use of credit should work FOR you, not against you.
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Credit Card Articles > Credit Card Debt > How Much Credit is Too Much?
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