Control How You Spend - When & Where You Spend

The key to managing your credit is control - control of how much you spend on credit, how quickly you pay it back, and the types of items you purchase. Credit is not a financial cure-all. Used the right way, however, it can help you afford certain purchases and build a powerful credit rating.

Your Monthly Credit Budget

It may seem obvious, but it's easy to let a payment due date slip, and that can cost you extra fees or finance charges and affect your credit rating.

When paying your bill, always make at least the minimum payment shown on your statement.

To reduce your finance charges, make more than the minimum payment each month.

Budget for balance

With all the various payments you make each month, it's easy to lose track of just how much you owe. To answer the question of how much debt you can handle, use the 20/10 Rule:

Never borrow more than 20 percent of your annual net income (after taxes). And your monthly payments should never exceed 10 percent of your monthly net income.

In addition, keep track of every credit purchase you make each month. This will help establish your monthly credit "budget" and spare you eyebrow-raising surprises when your bill comes.

Plan your credit spending

Use your credit for planned purchases that you intend to pay off over a specific time period. Impulse buys for "unbeatable" prices can stay on your bill for months, costing you more in the long run.

Before taking cash advances, consider the associated finance charges. Often, they can be much higher than they are for purchases. Avoid approaching or reaching your credit limit if at all possible. You'll save on finance charges and keep credit available for emergencies like car repairs or unplanned medical costs.

Keep an eye out for these warning signs

Answer the following questions. If you respond "yes" to any of them, you may need to reevaluate your debt load or possibly seek some assistance.

1. Are you able to make only the minimum payment each month? Are you consistently making late payments?
2. Is the amount of your new purchases a surprise each month?
3. Have you ever borrowed money to pay off another debt or loan, or applied for a new credit card to pay off an old one?
4. Have you reached or exceeded the limit on your account?
5. Do you need to work overtime or a second job to keep up with your debt payments?
6. Are you spending your savings to cover everyday expenses? Pay attention to late payments, calls or letters from credit agencies, denied or revoked credit - these are all signs that your credit history may be in jeopardy.
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