Credit Card Responsibility

   Credit cards can be good or bad depending on how you use them. When you have a credit card, there will always be a little voice inside of your head trying to convince you that it’s okay to use it whenever. DON’T LISTEN TO IT.  Understanding how to properly use a credit card takes planning and discipline.  Unfortunately, many people in our country and our state have showed they lack those traits and have built up enormous amounts of credit card debt. New Mexico currently ranks 48th in credit card debt burden, which is essentially a measure of the average amount of credit card debt per person against our average income.  But understanding how to use credit cards responsibly is really quite simple, so hopefully we can improve our credit card debt situation in our state.  
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 Credit cards give people access to money to use and then repay later. It is a simple process; you get a card, buy things or pay bills with it, and then you get sent a bill each month and pay back some or all of what you borrowed.  So responsible usage really comes down to how you use it and how you pay it back.  

 The first step in using a credit card responsibly is to control your spending.  It can be tempting to use your credit card to go on a shopping spree or make that big purchase you've been wanting, but if you don’t have the money or a plan to pay it off, don’t buy it.  This is where budgeting factors in. If a person budgets their money right, they should have all the money that’s needed to make a living and pay their bills, including their credit card bill.   But overspending is one of the biggest mistakes people make on their credit cards.  First, balances that are kept on your credit card and not paid off are charged interest, and credit cards have very high interest rates.  This means you'll end up actually paying more for all those things you bought.  Secondly, the amount you spend on your credit card can impact your credit score.  Your credit card has a limit, and when a high percentage of a person’s available credit is being used, it indicates that they are overextended and unreliable.  This is called "Utilization".   Having a Utilization Rate of 50% or more can negatively impact your credit score.  If you have a credit card, you should use it.  The trick is to keep your balances low and stick to a plan as to what expenses you are going to use it for.

   The next big step in using a credit card responsibly is planning on how to pay it back.  Credit Card companies put "minimum payment" amounts on their bills, meaning you don't have to pay back everything you spend on your card that month.  But remember, anything you don't pay back gets charged interest.  People who only make the minimum payments tend to see their balances rise each month due to more spending and more interest being charged.  Your goal should be to pay your credit card off every month if possible. In the situation that you can't pay it off, then you should plan to stop using the card until you can get it paid off.  Credit Card debt can get out of control very quickly without proper discipline.

  Another consideration for payments is to make sure that you make them on time.  If payments are made late it will have major negative impacts to your credit score.   A person's payment history accounts for 35% of their score, which is the biggest portion of how your credit score is calculated. Also, credit card companies charge big fees for late or missed payments, up to $50.  They will also increase your interest rate significantly if you make a payment late, leading to a greater amount of interest you'll be charged on your unpaid balances.  

    A lot of people see credit cards as being bad but they are actually a good thing for things such as access to unexpected emergency expenses, consolidating expenses and bills, and building a strong credit score.  Credit scores aren't just used by bankers and lenders.  They are also used by employers, car insurance companies, landlords, and other people or organizations. 

    Now that you’re better educated, it will become easier to ignore that voice inside of your head, resulting in you being able to make better financial decisions. Be responsible, keep your balances low, and make your payments on time and in full.