Monday, January 12, 2009

Credit Line Shouldn't Be Viewed as Part of Your Income

Too frequently, consumers view their credit card's line of credit as they do with their own paycheck -- as an amount of money they have to spend as they please. They may simply add their credit limit amount to their earnings total and decide the sum is how much they have to use for expenses and purchases. But such thinking is what gets many people into serious problems with credit card debt. Unlike using your own money, when you pay for something with a credit card, you are in fact borrowing from the card issuer to fund your purchase.

Your own money could come from sources such as your paycheck or earnings from investments. However, with credit card spending, you are paying using someone else's money. This is different than paying with a debit card or prepaid credit card, which either draws money directly from the consumer's checking account or from an amount of money pre-loaded onto the card. If you have trouble keeping yourself from burning through an entire line of credit, perhaps one of these other payment cards would be a good option for you.

Credit limits are often large numbers that can make you feel like you have the deepest pockets in the neighborhood. If you have a good credit history, getting one a sizable credit limit is not too difficult. Consumers may be rewarded for a solid credit history with a substantial line of credit when they apply for a new credit card. Or, they may have the line of credit on an existing credit card extended if they pay their bills on time and have proven to be an a low-risk borrower.

But before you begin swiping that credit card with the huge line of credit, think about how much money you actually have to spend. Don't ring up charges you will have to struggle to pay back with your own cash.

Having a large line of credit could be a problem for those consumers that have trouble only spending what they make or less. You do not (and most likely should not) spend as much as your credit limit allows. You will have to eventually pay this borrowed money back. When it is time to do so, where is that money going to come from? Remember that the line of credit extended to you by a credit card company is not the same as your personal income.

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