When the credit card offers start coming, they seem to compete with each other by raising the level of credit that they will extend to you. You may get a small thrill when you receive a letter from a credit card company telling you that you're prequalified for a line of credit that boggles your mind.
These days, companies are offering $10,000 $25,000, and even up to $100,000 lines of credit. This is absurd! Why would anyone want that much credit card debt? You may be flattered to think that someone would extend you a line of credit for large amounts of money, and you may be tempted to say, "You never know when that money would come in handy." Don't give in to temptation too easily - you need to think seriously about the level of credit debt that your income can tolerate. Just because a lender is willing to extend that line of credit does 't mean you have to use it. Still, the temptation to do so is great, and many fall into the trap of using their line of credit to the maximum.
Imagine Mr. and Mrs. Conservative - the couple who pay cash for everything and don't owe anyone money. Their debts are paid. Their cars and house are paid for. Their children went to college and are now buying houses of their won. Yes, they borrowed money, but only to buy their home, and then they paid off the mortgage ahead of time.
Now, imagine Mr. and Mrs. Bigspender - the couple you like to be with because they always pick up the tab for dinner. They talk about the expensive vacations they take. They live in a large home and drive expensive cars. They are up to their eyeballs in debt. They have no clue about how to change their spending and debt habits. Who's really having all the fun!
Your own comfort with credit card debt is likely to be somewhere in the middle. Most financial advisers recommend a personal debt limit of between 10 and 20 percent of your net income, maximum. If your debt margin is too close for comfort, sit down right now and write down three ways that you can reduce your monthly credit-instalment payments. If your debt margin is comfortably less than your monthly credit obligations, don't rush out to buy things on credit. Instead, congratulate yourself on your frugality and revisit your savings plan.
