Many people use debt financing to expand their businesses or make major purchases. Most enjoy the discount rates and the convenience that comes with such arrangements. Some even use loans to cater for emergencies and get out of hard situations. Getting funding is easy for many people, but the hard part is pulling out of such debts. Most people get themselves in such debts which they service for the rest of their lives. The following are 4 Signs It’s Time to Cut Up Your Credit Card.
- You Have More Cards Than You Can Handle
Local stores offer credit cards which customers use to accumulate points and create brand loyalty. You may be tempted to pick different cards from the grocery store, gas station, and local wineries because they come with enticing benefits. Some will even offer up to 20% to holders on particular days which attract more subscribers. You should understand reasons why one should have a credit card before applying for one.
- You Buy Things You Cannot Afford
Some people buy things beyond their means just because such cards are readily available. Take an example of when you visit the grocery store, and you get tempted to take the new candy flavour and charge it to your card. If you use cash, you live within your limits and avoid impulse buying. A credit card can also make you purchase more goods than you require. You can sometimes buy warm or cold clothing due to sudden weather changes.
- You Only Afford the Minimum Payments
The card issuer requires you to make certain payments every month. Some debts may be huge and may take several months to offset. Remember that you have other bills such as rent, water, and electricity bills among many others. You should offset such bills and still have enough to repay your debts without a struggle. It may take many years to repay a debt if you can only afford to make the minimum payment that the lender stipulates.
- You Hit Your Maximum Limit Every Month
Credit cards come with limits which you should operate within every month. Utilizing the entire credit limit harms your credit score. The lenders evaluate the credit utilization ratio to examine your spending habits. This percentage should be below 30% to attain a favourable score that lenders can consider. You should learn to prioritize bills and learn which to use cash and which requires credit.
You need financial discipline and advice from professionals to make the best out of credit cards. You should know when to use a debit card(s) and when debt is ideal. The whole idea of credit card is to make shopping and payments convenient but not to land you in debt traps.
You can only make a credit card work to your advantage if you’re in a strong enough financial position to be able to pay off your balance as you go. In this situation, you’ll be able to take advantage of all the benefits that come with owning a credit card, be it air miles or similar. The time when you absolutely shouldn’t rely on credit is when you don’t have a long term financial solution to support you. Then you might find you’re in real trouble.