We may have been in a place where you were standing in line to pay for the merchandise you are about to purchase. When it’s your turn with the cashier, you pull out your pocket and find that your wallet doesn’t have cash in it and you pull your credit card out instead. Charging your purchased goods to your card and silently promising yourself that you will be paying for the charges you made in cash in full. Then when the payment due date arrives, you seem to understand that you currently need extra cash this coming week for an out of town with friends, you pay your credit card with the minimum amount due.
The cycle repeats until you realize that you are now deep in debt with your credit card charges.
One way of avoiding this is by getting a card and capping it with a credit limit that you can pay if things are going tough. Here are a few things you can consider to know how much credit limit you need.
- Try Using a Percentage
When trying to identify the credit limit you will need, try to base it as a percentage of your salary. In this case, you will be able to have a credit limit that is below the salary you are earning and having the knowledge that your credit limit can be paid. Identifying a specific percentage for your credit limit based on your salary means you know there will be an amount enough to pay of your entire debt in case you max out your credit card.
You can also try a percentage of your expense. But this is much riskier than basing your credit limit with your income. Knowing how much additional expense you can cover until your income isn’t enough is very important when applying this.
- Know Your Needs
Another thing you should be aware of would be to know what your credit card is for. Are you going to use it for shopping? If yes, how often do you shop? This will give you an idea of how much you spend and how much you will be charging your card. Knowing what the card is for will allow you to know how much you will spend.