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3 Questions to Ask Yourself Before You Return to Credit Cards

May 8, 2014
Credit Cards
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If at first you don’t succeed using credit responsibly — try, try again? If you’ve misused credit in the past, it was likely a costly mistake. You may be afraid to start charging your purchases a second time. Here are a few questions to ask yourself before you dive back in.

Why would you even want to use credit again?

Credit cards can be a great tool if they are paid in full each month. They can net you cash or travel rewards and provide perks like rental car insurance and purchase protection. Many cards extend your factory warranty on purchases by a year. And if you pay the balance each month, you effectively get a free 30-day loan.

If you want these perks, you may want to try using credit cards again. Answer these questions to find out if you’re ready:

1. How have your financial habits changed?

Having credit card debt generally means you’re living beyond your means. If you’ve since learned to budget and save a portion of your income, it may be time to give credit card usage another shot.

Learn to budget: While you don’t have to budget and track every penny, you should have a good idea of where your money is going. Your income should also exceed your expenses — which I’ll discuss in a moment.

Save a portion of your income: You need savings for some expense in the future — homeownership, education, maybe retirement. You should be putting aside cash for these life events before you think about throwing credit cards back into your spending routine.

Just remember, credit cards aren’t cash, and they shouldn’t be treated as such. They should be used as a tool, not a crutch. As a newly minted credit card user, it’s important to only put on the card what you can afford to pay off each month … and then pay it off each month.

Paying unnecessary interest isn’t the way to use credit cards. If you don’t think you have this type of self control when it comes to credit, you’re not ready to use credit cards again, yet. If you do, you may be able to handle it.

2. Does your income adequately cover your expenses?

You have to make enough money to cover your expenses. If you’re barely able to pay your basic bills, a credit card will tempt you to spend above your means.

If your income is too low to meet basic expenses, you either need to increase your income or lower your expenses on an ongoing basis. Once you do this, you can reevaluate your ability to use credit cards responsibly.

3. Do you hate credit card debt enough to never go back?

Credit card debt can put you in financial straits and force you to pay thousands of dollars of interest. The only surefire way to make sure you’ll never go back into credit card debt is to have a deep distain for it.

If you don’t want to deal with credit card debt again, you’ll keep your spending in check. If you don’t abhor it, you’re more likely to overspend and not be able to pay off your entire balance each month.

It’s OK if credit cards don’t work for you. And all the rewards programs in the world won’t make up for late fees and interest charges. Decide for yourself if you can use credit cards responsibly by examining whether or not your financial habits have improved, your income can reasonably cover your bills, and you hate credit card debt enough to never go back.

Credit card image via Shutterstock