10 Commandments of Personal Finance, Commandment #4: Thou Shalt Limit the Amount of Debt on Credit Cards

Bankrate offers a list of the 10 commandments of personal finance that I'll be sharing with all of you as well as providing my thoughts on their selections. The commandment for today:

IV. Thou shalt limit the amount of debt on credit cards

Sebold recommends that you never use more than 50 percent of your available credit line on each credit card you have. For example, if you have a credit card with a $6,000 credit limit, don't use more than $3,000.

Sweeney recommends that people limit the number of credit cards they use, and in her opinion, no one should have more than two main credit cards. Department store credit cards are different because it's easier to keep a handle on those because you're most likely not going to shop there every day.

Here's what I'd add:

1. Only charge items that you have in your budget.

2. Pay the cards off every month.

3. If you're in credit card debt already, spend less than you earn and apply the surplus to the card's balance until it's gone.

4. As most of you know, I use credit cards as a way to earn extra money for doing what I'd already do (buy things.)

5. BTW, I use the two-card guideline too, but for me it's more of a convenience factor. I don't want to have to manage 10 cards.

For related thoughts on this topic from Free Money Finance, see these posts:

• How You Can Earn Over 2.6% Cash Back by Using a Combination of the American Express Blue Cash and Chase Freedom Cash Visa Credit Cards

• The Keys to Getting the Best Reward Credit Card for You

• Key to Credit Card Success: Pick the Right Credit Card for Your Spending Habits

Click here to read parts 5 and 6 of this series.

Click here to read part 1 of this series.

Comments

[Young]

Here's a question: does it matter if one uses >50% of the credit limit on a card, so long as one is not applying for anything that requires a credit score? I want to reduce my number of cards, but moving the balance from one to another will put my balance on the second card over 50%.

[Kenny]

I totally agree with you. We have become a 'Want It Now' and 'I Will Pay For It Later' society.

We are learning a lot from the old east (India, China etc) with natural medication, yoga, organic stuff etc. We need to learn that India and China is a society that lives with 20% to 40% in savings of their gross earnings. We live on tomorrow's income and therefore use up savings that we will need tomorrow.

It is very simple:
1. Have a credit card ONLY if you are disciplined.
2. Buy only if you can PAY OFF the amount at the end of the month
3. Use the Credit Cards by borrowing their "FREE MONEY" for 30 to 45 days (as I have done for 25 years), and then pay it off.
4. If special offers come with 0% APR for 1 year or so, with $29 to $39 one-time-fee, then borrow to the max, and put in a CD. At the end of the Free Term, pay it off. I have done that recently with Discover card for $7500 and it is working great. Have already put in the 'Bill Payment System' to pay off the remaining balance 15 days before the date the APR moves to 9.7%.

Just my 2 cents, and I am teaching this to my Teen Agers who HAVE GOTTEN THE MODEL deep down in their hearts and minds, since they do not want the $49.95 game to cost $65 with the monthly payments. They think that it is a RIP OFF!!!!!!!

KKP_Investor

[Thewalletsaver]

I would suggest use a program such as MS Money to keep track of your credit card purchases. You will know right away how much you have spent so far for the month. When you receive your statement you can check what you entered against what the statement says.