Main Points - Borrow

Borrowing money can help us make some purchases in our life. A House or a Car are the two big examples, where we might not have the money right now to purchase them. But we need to manage our Borrowing; or we might end up in a bad situation.

There are two very important types of Borrowing, Loans and Credit Cards. We generally use Loans to borrow money for a house or a car or home improvement.  Generally Loans are used for big ticket items, while we can use credit cards to borrow money for small purchases.

Borrowing money can be very useful, if managed properly. We use Borrowing to fill the gap between our Earning and our Spending. How much we can Borrow in each case usually comes down to a few deciding factors.  The biggest comes in the form of our Credit Score.  Our Credit Score is simply a score assigned based on our past Borrowing history. The Credit Score will help banks and credit card companies determine if they should lend money to you.

While a Home Loan or Car Loan will usually have a fixed payment every month, our Credit Card depends on how much we Borrow on it. We always encourage people to use a Credit Card when making purchases, for one it provides a record of all our transactions which is useful in budgeting.  And also because using a Credit Card offers us certain protections.  If we loose our Credit Card, we often won't loose any money however, if we loose the cash in our pocket, it is usually gone forever.

More and more people are using Credit Cards, but there management of these cards can quickly land some of them into trouble.  Borrowing more money than someone has available is a quick way to get into debt.

Our rule about Credit Cards is: One, do not use a Credit Card to make a purchase if you don't have the cash in your bank account right now. Two, only use up to 30% of the credit limit, using more than 30% can affect your credit score negatively. Three, always pay off the Credit Card at the end of each billing cycle, we don't' want to pay interest if we don't have to.

For Example, I don't have any money in my bank account, but I will get paid in a week, should I buy those concert tickets with my Credit Card?

The answer is generally NO!

Why?

When you are Borrowing money on the Credit Card and expecting the money to pay it off in the future, it leads to very bad habits, and you are playing a dangerous game of missing a payment or overspending.

Another way to look at a Credit Card is to think of it as a Debit Card, if the money isn't in the account, we can't use it. Obviously we have situations sometimes that occur, where we might need to use it outside of the rules, but we want you to be aware that it shouldn't be the norm.