Too Much Credit Can Spell Disaster

The proper use of credit requires constant evaluation and monitoring on the part of the consumer.  One can get in over their head very rapidly.  Which begs the question: how much credit is too much?

When considering the use of credit as a way of financing purchases one must examine their budget to determine whether or not timely payments can be met.

Keep in Mind. A common rule of thumb is to keep credit payments from taking over 20% of your gross income.  Now, that being said, the amount of credit taken out to equal payments of 20% depends on interest rates, etc.

The question of how much credit is too much is really a part of a larger discussion of the part that credit plays in your financial picture overall.  That discussion must include a personal determination not to let credit rule your finances, but rather, you set the rules for credit and make it work for you.  If you are successful in this type of environment, then chances are higher for you to take control of credit and not get caught in its tenuous grip.

Life Surprises. Even so, the unexpected events in life that arise and cause financial stress are sure to come.  If you have a plan for how to handle these with respect to your credit, then you will be able to weather these “storms.”

Put Money Back. Before taking on significant amounts of credit, build up an emergency fund of cash that is easy to get to in order to be able to make payments on time for your credit accounts.  You will find this cash fund handy for mitigating life’s surprises.

An emergency fund should be at least $1,000.00 in cash.  It should be immediately liquid and available.  So, it is wise to place this fund in a secure location in your residence.  Any safe or other location that is secure will do.  The existence of this fund must be protected in order to keep it secure.  The fewer people know of its existence, the better.

Those who are good at handling their finances and have a budget will be better at handling credit as well and avoiding its pitfalls.  You must make time to constantly review your status with regard to balances and payments in order to remain current.  Making this a part of your normal routine will keep the credit issue at the forefront of your financial thought process.