Polonius, a character in Shakespeare’s play Hamlet, advises his son, “Neither a lender nor a borrower be.” With due respect to Polonius and his genius, credit has become an integral part of our lives. While most of us cannot be lenders, we are bound to be borrowers because of the system we live with.
In today’s world, the significant rise in demand for all kinds of products and services has fuelled the demand for credit.
Uses and Misuse of credit
Using credit has two facets: on one hand, it gives you immediate benefits by helping you fulfill your needs and aspirations but on the other hand, it exerts financial and psychological costs, if not handled properly. It is therefore advisable to use the credit only when the advantages outweigh the costs.
The uses of credit are humongous ranging from medical emergencies, education needs, travel emergencies, to fulfilling immediate personal needs etc. Credit cards are usually very handy in most of these situations.
While credit cards are very convenient to use and extremely helpful in times of need, their misuse can ruin your finances, make you bankrupt and dilute your creditworthiness.
Just because a credit card has a bigger limit, people tend to overspend. Also, many people have the tendency to pay just the minimum amount due. The liability becomes huge after some time.
Manage your credit health
A good understanding of credit and how it should be managed wisely is the key to becoming credit healthy. We must judiciously use the credit options available to us. One must consciously build a good credit score in order to get higher credit at lower rates of interest, in case of an emergency.
It is essential to manage your finances effectively to avoid getting into a situation that would require external help, like that of a credit counseling and improvement agency. Although, using credit allows you to spend more on goods and services now, it reduces the money you have for future needs, as a part of your future income will be used to pay for the services or goods you are buying now.
Tips to manage credit wisely:
- Always pay your credit card bills on time:
Pay your EMIs regularly. Any default will damage your credit score and hence creditworthiness. Also, it is advisable to pay your credit card dues in full (avoid paying only the minimum amount due).
- Keep track of your credit score:
If you feel your card details have been compromised, take it up immediately with the bank that has issued the card.
- Do not use too many credit cards.
Avoid treating credit cards as easy money. Overexposure to credit could get you into a debt trap.
- Avoid buying unnecessary items:
Do not spend on items you do not really need, just because they are available on zero credit and low EMI. Remember, it is money spent.
- Always try to increase your down payment when you take up a loan so that your monthly liability doesn’t eat into your savings.
- Finally, credit doesn’t increase your purchasing power.
It just brings future purchasing power to the present and gives you a false impression that it has increased.
Credit Triangle is a one-stop solution for all your credit and finance needs. We provide assistance in credit health management, repair, and improvement.