Credit Cards Can Work With a Budget

Saturday, November 29th, 2008

budgetFor many people who have worked hard to pay off past debts or who are just now venturing into the world of credit card ownership, it becomes essential to understand the importance of creating, managing, and sticking to a budget. Credit cards are a responsibility not to be taken lightly. They require planning and simply must not be considered “free money”. Credit cards are a great sense of financial security provided they are paid off each month and allow you access to funds in the event of an emergency.

However beneficial credit cards may be to your financial well-being, they can also quickly become your downfall if not used properly. One of the most common mistakes people make with their own personal finance is by not setting and sticking to a budget. If you do not know how much money you have or the amount of expenses you need to pay, there is no way you will even know how much you can afford to spend.

This is where the budget comes into play and credit cards will play a vital part in its creation. Because credit allows you to buy now and pay later, it can be so easy to forget the latter. People all too often make the mistake of overspending on credit because they don’t know what they can afford to spend. The rule of thumb here with credit is spend only what you have the cash for. You should always have a plan to be able to pay off the entire credit card balance each month. So, setting up a budget will allow you a very visible picture of what money is left over. Without that knowledge, you can not be assured of the cash to pay the bills in full.

To understand how much money you have to spend towards a credit card balance, you need to make a list of all of your monthly financial obligations. You also need to list reasonable amounts that can be put into savings and don’t forget to set more aside for unexpected expenses such as home repairs or vehicle maintenance. Once you have totaled the outgoing money amounts, you need to subtract the income sources you have. Whatever figure is left is essentially the “extra money” you can afford to put on your credit cards.

When you establish a budget, you need to account for the balances already present on your credit cards. If you have more than one card that carries a balance, it may be in your best interest to shop for a better deal. Look for low-interest cards that offer good rates on balance transfers. Work out the amount of payments you can then afford, based on your budget, that will allow to pay off the new credit card balance in the shortest period of time possible.

Now that you have an idea of what amount of money you have left each month, you should be able to make wiser choices about your credit and your finances in general. Making the determination between “wants” and “needs” can also make a big difference in your spending habits, particularly if you have never lived by a budget in the past. Remember that credit cards can be a good friend or your worst enemy, especially if you have limited or no previous credit experience. Those people who have successful recovered from financial problems and battled back from poor credit histories particularly need to establish strict rules for themselves concerning budgets and money or risk falling behind and wallowing in debt for many more years to come.

One Response to “Credit Cards Can Work With a Budget”

  1. Prime Credit Cards Says:

    Another great post! So true, its important to cater your budget and program to your individual spending habits and needs. Credit cards can fit in their somewhere with discipline. I have found them to be a wonderful safety net.. cash is better I suppose, but we don’t all make a fortune.

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