Although staying out of debt is a great advice, it does raise a couple of issues. The most prominent of them is the need to keep our credit score high. There are many uses for a good credit score and it goes beyond getting a good interest rate on a loan.
A person with a good credit report is someone who is perceived to be a responsible credit holder and a great manager of money. It means you know how to pay on time, you understand your financial capabilities and you make smart decisions when it comes to your credit. It can paint you in a good light with potential employers or business partners. It can help you secure a good home in an affluent neighborhood.
But here’s the thing, in order for you to have this good credit score, you need to have credit. And that does not only mean once. You have to do it a couple of times to maintain a good score. So how can you keep your credit score high and still stay away from a debt pit?
There is a way to accomplish this and it may surprise you to know that credit cards is your best shot at this. Although we understand how difficult it is to get out of credit card debt, if you follow the rules, you will understand how you can make this work.
First rule is to input your credit card spending in your budget. This will help you limit your spending and will keep you from going over your budget. You need to plan how and where you will use your card.
Second rule is to pay the full balance within the grace period. This is the time between the purchase date and when that transaction is due on the billing statement. If you pay it in full within this time frame, you do not have to worry about any finance charges being added to it.
The third rule involves purchases that you cannot afford to pay in full within the grace period. In case it is a big expense, make sure you have a payment plan before you proceed with the transaction. And refrain from using the card until after that debt is fully paid.
The fourth rule is to limit the use of your card. Even if you place it on your budget, try to limit it all the same as you may get used to relying on it again. Most credit cards needs to be used once every 6 months to keep it active. You can decide to use it every other month or even once a month - just make sure to pay it back immediately.
The fifth rule is not to rely on it during emergencies. It is not really a good idea to do so and you are better off with a cash emergency fund. Now if that cash fund is depleted, then that is probably when you should use your credit card.
These rules should help satisfy the requirements that will give you a good credit score. At the same time, it will help keep the credit under manageable proportions so you stay away from a debt pit.