How to Manage Credit

People today need to be proactive when it comes to their credit. Learn how to manage credit and you will always have money.It is very easy to get over your head in credit card debt. There are too many great new things to buy.Do we really have to have a new 60′ flat screen TV or new living room furniture or the new ipad2? Do not get me wrong about these products. All of these products are great, but should you use a credit card to pay for them? I want to give you ideas about how to manage credit efficiently.

#1. Cash or Credit?
I have seen people with $20,000 or more of available credit on their credit cards. Does this mean you should use all the credit? No.
A simple rule to follow is if you cannot pay off an item off within 2 to 3 months then you should not make the purchase. Saving up the money for a couple hundred dollar purchase is better than putting the item on a credit card. It takes discipline to save up for a purchase. In addition you will save a lot on the interest charges the banks charge you.
How to manage credit on purchases is to look at your bank account before putting an item on a credit card. If you do not see yourself being able to pay off the purchase quickly wait until you have saved more money for the purchase.

#2. How to Manage Credit on 12 Months Same As Cash Purchases
Department stores love to run this special. Don’t make any payments or just the minimum for 12 months with NO interest.
Read the fine print.
The store may not be charging you interest on each payment, but if you do not pay off the item in 12 months all the interest is due from the original purchase price.
How to manage credit in this situation is easy. If you purchase an item on 12 months same as cash you need to divide the purchase amount by 10.
For example, you bought a new flat screen TV for $1,000 with no interest or payment for 12 months. Do not pay any attention to the NO PAYMENTS part because the reason you are financing the TV is the lack of $1,000 cash.

You need to make at least $100 payments every month. The reason I use 10 months instead of 12 is sometimes payments get lost in the mail or you miss a payment. The department store will charge you interest on the entire balance if the balance is not paid off 12 months from the date of purchase. People miss this point and end up paying a lot of unnecessary interest. Easy to get credit cards are not always the best cards for your long term wealth and credit score.

#3 What is Your Budget?
I saved this final point on how to manage credit as last because it is the most important. Before making any purchases on credit you need to calculate the minimum payment in your head.

What amount is the minimum payment?
As a rule of thumb most credit card companies require 2% to 4% payment on the balance each month for the minimum payment. For example a $1,000 purchase would have between a $20 to $40 minimum payment.

Now $20 to $40 does not seem like a very high payment. However, you need to remember the entire payment does not go towards the $1,000 balance. There is a little thing called interest the bank charges you each month on your entire balance. For example, if you are paying only $20 a month about $17 of that $20 payment will go towards interest on a $1,000 balance. The remaining $3 goes to the principle or balance.

How to manage credit can be quite difficult if you do not follow these three simple rules. Make sure you understand the rules of credit cards before you start using credit to make purchases. You can save yourself and family a lot of money in interest.