Using Your Credit Responsibly Means You'll Always Have Credit to Use

Consumer debt in the United States is at an all-time high. Average household debt (not including mortgages) has almost doubled over the past decade and now stands at almost $15,000, according to Consumers for Responsible Credit Solutions. The average credit card balance per household is approaching $10,000, and the average family pays more than $1,000 per year in credit card interest payments.

Obviously, spending more than $1,000 a year on interest payments alone doesn't make any sense. But logic doesn't have anything to do with racking up credit card debt - emotions do. "Credit cards make it easy to satisfy any consumer urge immediately," says Maxine Sweet vice president of public education for Experian, a global information solutions company.

There are times when you may need to use your credit for unexpected expenses such as car repair or an emergency trip to visit a sick relative. Routine use of credit should be for the benefits and convenience it offers - not to supplement your income. "Used wisely, credit provides powerful financial benefits," says Sweet. "But used recklessly, it can affect your emotional health and financial future."

The keys to managing your spending and credit habits are simple - self knowledge and self control. Here are some suggestions to get you thinking about how to use credit more wisely and responsibly.

* Learn to budget - "It's hard to live within your means if you don't know what your means are," says Sweet. You have certain fixed income and expenses every month. After accounting for those items, set aside some money for savings, which will be needed for big purchases (such as a down payment on a house), emergencies (such as unexpected medical bills), and retirement, of course. Anything left after that is your disposable income. You must plan your lifestyle so that you spend no more than that amount every month.

* Figure out where your money goes - if you are spending more than you earn every month, take some time to sit down with your check book and your credit card statements to figure out why. Do you own three dozen pairs of shoes? Is your garage full of tools you never use? Do you eat out for lunch every day or consider a Grande Latte a "must have?" Small expenses can add up fast. By understanding both your major expanses and your daily behavior, you'll be more likely to make changes that keep you from overspending.

* Check your credit report - you can quickly and easily access your credit report at www.experian.com. Seeing your payment history and total debt may shock you into curtailing excess spending. Make sure all the information on your credit report is accurate. If you notice anything questionable, such as accounts you don't recognize, or payment disputes, resolve those issues by contacting your creditors and the credit reporting companies.

* Pay your bills on time - missing a payment or mailing it in late can result in extra fees or finance charges, and will adversely affect your credit score. Always make at least the minimum payment due, and make an effort to pay as much as possible. Don't apply for a new credit card or use an existing credit card in order to pay off the balance on an old one. This is a dangerous cycle to get into.

* Don't try to keep up with the Joneses - you've probably heard the phrase "he who dies with the most toys wins." It's O.K. to have a little fun, but don't fall prey to the message that you are what you own. Don't put yourself in debt to pay for nonessential items such as electronic gadgets you will only use once or 500 cable television channels. It is also healthy for your children to understand they can't have everything they want and that they can't always match their friends. We all need to prioritize and make choices.

* Think of the future - if you owe $10,000 to your credit card company, that debt will cost you a whopping $28,079 if you pay it off by making only the minimum payment every month, based on 18 percent interest. Think of this as stealing from yourself, and keep those figures in mind next time you're tempted to charge something you don't really need.

* Need vs. want - when you're in a store with your credit card in hand to make a purchase, ask yourself if what you're buying is a need or a want. What's the difference? Food and shelter are needs. The latest electronic gadget is a want. You need a car to get to work, but you want the biggest, baddest SUV with the fancy wheels. Learning to differentiate between the two can help you control your spending.

Living within your means and using credit wisely can be a challenge at first and takes discipline for the long term. But both your bank balance and your stress level will be better off. And you just might learn something about yourself in the process.

For more information on how to better manage your credit and to access your credit report and credit score, visit www.experian.com.

Courtesy of ARA Content