All of us are looking for financial freedom to live the life of our dreams. We want to travel, live a comfortable life, and fulfill our desires. Of course, it is easier said than done, as everything requires money.
Credit Cards And Financial Freedom
Many people opt for credit cards to make their lives easier, but is it really the road to financial freedom? Let’s find out.
The Dangers Of Credit Card Debt
Credit card debt is a real thing, and even you can get stuck in this trap if you don’t make conscious choices. Such debt is also unsecured, as it is not backed by any asset, such as your property or your vehicle. That is why you will damage your credit history and score if you don’t pay back your credit card debt.
The key is to pay off the entire credit card balance on the date it is due every month. When you carry the balance of your credit card from one month to another, you are charged an APR interest. Most of these rates are variable.
Here are the top three ways you can fall into credit card debt and how to avoid these pitfalls:
Not Having A Budget
You must create a budget if you don’t want to overspend or go into debt. The key is to trim costs and make changes where needed. Besides that, you need to save your income to ensure that you have money for a rainy day.
If you don’t create a budget, you will not be able to understand your expenses and allocate them. So, if you want to be free from credit card debt, you must create a budget each month.
Not Keeping A Low Debt-To-Credit Ratio
This is also known as the credit utilization rate. It shows how your available credit card balance and your limit. Many people max out their credit cards, and it affects their cash flow. Doing this will impact your credit score, and you will be increasing interest charges yourself.
That is why you must work towards keeping a low credit utilization rate. The ideal rate is less than 10%. However, you can stay between 10% and 20% for the best results.
Not Fulfilling Your Responsibility
Finally, you must fulfill your responsibility of paying off your credit card each month. When you do this, you will not accrue any additional expenses for yourself in interest payments. When you accrue such expenses, you prolong your debt even further.
If you plan on getting a credit card, you need to understand that you have a responsibility you must fulfill. Of course, if you are having trouble making the payment, then you must talk to your creditor. They might lower your interest.
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Are Credit Cards The Road To Financial Freedom? Top 4 Reasons
Now that you know how to use your credit card wisely, you might still be wondering if credit cards and financial freedom can co-exist. Here are the top reasons credit cards can help you with financial freedom:
Frequent Flyer Miles And Fuel Discounts
Fuel has slowly become one of the most expensive commodities of our time. When you select the right credit card, you will get rewards such as fuel discounts, flyer miles, discounts while shopping and dining, and much more. You can earn points on your credit card and avail these amazing amenities.
Higher Capacity To Spend
Another important thing you can receive while using a credit card is having a higher capacity to spend. You will get the ability to spend more, as long as you can pay it back. In the long run, this will help you create the life of your dreams.
Credit cards can help you incorporate financial discipline into your life. You will know that you have to pay the money back, which is why you will be careful while spending. Doing this will help you create good financial habits, so you can be on the road to freedom.
Finally, credit cards will give you the enhanced convenience you will need to make your shopping and spending as easy as possible. Retailers are always offering discounts on credit cards, and you will be spending less money because of this. So, if you want more financial convenience, you can get it if you use your credit card wisely.
That is everything you need to understand about credit cards and financial freedom. Yes, they can co-exist, but only if you use the credit card wisely and don’t fall into the debt trap. It is all about making the right choices that will make your life better in the long run.
So, if you are planning to get a credit card, then we recommend that you follow some guidelines to keep your finances in check. Once you do this, you will be spending consciously and keeping your credit score in check. Financial discipline is incredibly important when you get a credit card for your needs.
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Josh is an entrepreneur and financial expert with over a decade on Wall Street as an economic strategist. His career started in finance, progressed to owning multiple business, and now shares his insights and life hacks with readers of DailyWisely.com.
Josh's work and authoritative advice have appeared in major publications like Nasdaq, Forbes, The Sun, Yahoo! Finance, CBS News, Fortune, The Street, MSN Money, and Go Banking Rates. Josh currently shares his financial expertise in investing, wealth management, capital markets, taxes, real estate, and personal finance on his personal finance site, Top Dollar Investor.
Josh graduated from Cornell University with a degree from the Dyson School of Applied Economics & Management at the SC Johnson College of Business.
Josh is the owner of Top Dollar and Daily Wisely, the former focusing on personal finance and wealth building strategies, while this site focuses on living well and enriching content that Josh curates with his team.