Until there's a "Chicken Soup" book spoon feeding fiscal responsibility, warm your belly with the following 10 Foolish tips for managing your credit.
1. Don't let creditors set your spending budget. You have been deemed creditworthy by some entity (Target, Visa, The Motley Fool, Puppy Palace) that is willing to let you borrow money for a short period of time. Though your credit limit may add up to $34,538, that is not money you should feel free to blow.
2. Ignore banker's rules. Your debt-to-income ratio is the measure of how much debt you carry to how much money (after taxes) you have coming in. In the world of lending, it is "acceptable" to carry 25% of your income in debt. Consider this example:
Total credit card debt: $6,437
Total after-tax annual income: $30,000
Debt-to-income ratio: 6,437 / 30,000 = 21.4%
A 21.4% debt-to-income ratio is awfully high in our opinion. The ideal number is zero. But at the very least you want to keep your debt -- including car loans -- to 15% or less of your after-tax income.
3. Don't pay by their rules. The "minimum amount due" is cleverly calculated to keep you beholden to The Man for your entire adult life. A $4,500 balance will take 44 years to pay off, even if you don' t put another dime on the card. Oh, and the interest you'll pay on that loan? A cool $17 grand.
4. Watch out for fees. You name it (overdrafts, "convenience" checks, talking to a human customer service rep), and lenders have found a way to charge you for it. Read the fine print.
5. Play the system. You are the customer. Do you want a lower interest rate, a waived annual fee, or to be excused from paying the $35 late fee -- and swear that it won't happen again (at least in the next six months)? Just ask! Your lender would rather keep you as a customer than shell out (anywhere from $50 to $150) to find your replacement. Use your leverage.
6. Stop charging. If you find yourself struggling to make even the minimum payments on your credit cards, stop, drop, and roll. (Good advice if you spontaneously combust, as well.) Stop charging. Drop your spending. And roll your balance over to a credit card that charges a lower interest rate. And then pay it off with fervor.
7. Boost your credit IQ. Your credit GPA -- your report and score -- is used by lenders to measure your creditworthiness. Your borrowing transcript is at your fingertips. Check out what's there (check out the 3-in-1 Credit Report and Free score being offered by our partner TrueCredit) to make sure that your record is an accurate reflection of your borrowing ways.
8. Carry just what you need. Most people need only one or two credit cards: one for purchases they pay off each month, and another for emergencies (or business purposes). Any more than that is usually overkill.
9. Get some free stuff. If you consolidate your spending on one card, consider getting a "rewards" card where you earn miles, stuff, or cash back on your spending. Still, don't let your spending get out of control just so you can get a free golf bag or a few extra airline miles.
10. Teach your children well. Your little darlings are big revenue streams for lenders. Have "the talk" with them before it's too late.