If you're new to using credit cards and other forms of credit, it's important to know how to borrow responsibly. Always make sure that you don't use credit cards or other loans to live outside your means, which is likely to result in debt and damage to your credit score. Here are a few tips that can help you borrow responsibly:
1. Keep track of what you spend
In order to borrow responsibly, it's important to keep track of what you spend, which can be done effectively by writing down your purchases in a log. Also, make sure that you keep track of your earnings, which can allow you to make a budget for each month. Always make sure that you leave room for incidentals and emergency expenses.
2. Pay off credit cards in full every month
If you're able to pay off the outstanding balance on your credit card in full each month, your credit score will increase over time. Furthermore, you'll avoid paying interest. The interest rate on many credit cards is extremely high. Avoid taking out credit cards and only making the minimum payments, which will lead to paying a large amount of money in interest over time. Often, this will be multiple times the principal.
3. Don't necessarily sign up for the first credit card you see
If you're looking for a credit card, it's best to compare the offers from all the major credit card providers along with your bank. In many cases, your bank will offer a better rate and better terms than other financial institutions. However, it's still important to shop around a bit.
4. Know the difference between healthy and unhealthy debt
In most cases, outstanding credit card debt that accumulates each month is unhealthy debt. However, mortgages, auto loans, student loans, business loans, and personal loans can all be healthy debt if you make the payments on time every month. As your credit score increases from making payments on healthy debt, you'll have even more options for loans and will be able to borrow a larger amount of money at a time.
Keep reading our blog for more financial guidance.