Know the areas of credit risk and credit benefits.
Having the ability to borrow money when you need it gives you financial flexibility. But asking too much borrowed money and unable to pay is a serious problem in our country. It is important to use credit responsibly and avoid having too much debt. If you understand how credit works and use it wisely, it can help you achieve your goals.
Credit profit zone
The benefits of credit are:
- The option of buying something today and pay the money later, rather than having to wait to buy it.
- The flexibility to make major purchases and to take advantage of opportunities that may require more money than you have available right now, like buying a computer or borrow money for college.
- Easier to rent an apartment and get service from local utility companies.
- Easier to buy what they want, when they want it.
The risks of credit are:
- exceeded; borrow more than they can afford.
- If you do not make your payments on time, it will hurt your credit history.
- Losing money in late fees.
- Having to pay additional interest.
- Difficulty in obtaining loans or credit in the future.
General Rule No. 1:
Never borrow more than 20% of their net annual income.
General Rule No. 2:
Keep your credit card debt low enough so that your required payments will not spend 10% of your net monthly income.
