Learning to use a credit card wisely is the best financial lesson to be learned. A credit card can be your best fried in a financial crunch. Unexpected costs can unravel your monthly budget. Credit cards can help you finance those costs when necessary. But if you use a credit card as you would extra cash, you could find that your best friend has become your worst enemy.
The Golden Rule of credit cards is to pay off your entire balance every month. There are many sound reasons to follow this advice.
Interest and Finance Charges: When you pay off your balance at the end of the month, you can avoid interest and financing charges. Isn’t it bad enough you had to pay the plumber to fix the toilet because your two year old flushed a rubber rat? Do you really want to pay interest on that?
Credit Score: High balances on revolving accounts like a credit card will lower your credit score. Your credit score determines the interest rates you receive on important loans like your mortgage and car loan.
Debt: According to the Federal Reserve, almost half of the households in the United States carry debt. Credit card debt only serves to increase your financial burden and worries. You end up with a monthly payment that depletes your liquid funds.
Learning to pay off your credit card every month may require some time to adjust. But once you get into this habit, you will find you are making more financially sound and responsible decisions. Instead of making unnecessary impulse purchases, you will begin to reserve your credit cards for important purchases and emergencies; since you are going to feel it in your pocket.