Credit
cards are well known for the high level of convenience and flexibility that
they offer as financial tools. On top of these benefits, however, these payment
cards each come with their own sets of responsibilities. For example, you are
expected to consistently pay your dues to your credit card issuer as well as
familiarize yourself with the best practices for safely transacting online and
in-store.
Considering
these, before you start filling in a credit card
online application form, it's a must to carefully assess whether
you're ready to assume the duties of a credit card user. One of the first
things you need to evaluate is whether your income is stable enough to handle
regular credit card expenses.
Be
sure to closely examine how you manage your finances and get the clearest
possible picture of your preparedness to use a credit card. Your awareness will
serve you well for your first credit card as well as subsequent credit card
programs you'll sign up for in the future, for example, the Landers Cashback
Everywhere Credit Card by Maya. Here are some considerations that you should
make with regard to your income before you sign up for a new card:
1) The Consistency of Your Income
A
steady, reliable income is essential for managing monthly payments on your
credit card, especially if you're planning to carry a balance. If you have
irregular or unpredictable income, then it may be difficult for you to meet
minimum payments—a situation that can lead to debt and lasting damage to your
credit score.
If
your income fluctuates month to month, it may be wise to stabilize your
earnings first before applying for a card. Building a financial buffer or
creating a budget that accommodates inconsistent income can help you prepare
sufficiently for credit card ownership.
2) The Card's Minimum Income Requirements
Credit
card issuers usually have minimum income requirements that applicants must meet
to be approved. This threshold can vary depending on the type of card you're
applying for.
Before
you submit a credit card application, check the specific card's income
criteria. Now, it's not enough for your income to simply meet the card's
minimum requirement. You'll also want to ensure you have enough left over after
essential expenses to comfortably manage your credit card payments.
If
your current income isn't high enough, focus on increasing your earnings or
building savings to improve your chances of qualifying for a card in the
future.
3) Current Debt-to-Income Ratio
Another
important factor is how much of your income is already being used to pay off
debt, also known as your debt-to-income (DTI) ratio. A high DTI ratio could
indicate that you are overextended financially, which can make it harder to
handle new credit card debt.
Aim
to keep your DTI ratio below 30%, as this is generally considered a healthy
threshold by lenders. If your DTI is too high, pay off existing debts first or
find ways to increase your income before applying for a credit card.
4) Disposable Income After Expenses
Owning
a credit card means you'll have an additional monthly expense. Keeping this in
mind, it's essential to evaluate how much disposable income you have after
covering necessities like rent, utilities, food, and transport.
If
you barely have money left over after these expenses, adding a credit card to
the mix may lead to financial strain on your part. Before signing up for a
card, check that you have enough disposable income to cover at least the
minimum payment each month, ideally more.
5) Your Existing Savings and Emergency Fund
Credit
cards should not be used as backups for emergency funds, as this can lead to
mounting debt. If you're unable to pay off an emergency expense in full,
interest will accumulate and make the situation worse.
Make
sure you have a healthy emergency fund set aside before taking on a credit
card. This way, you can certainly cover unexpected expenses without relying on
borrowed money.
6) Your Financial Discipline and Spending Habits
It's
no secret that credit cards can encourage impulse spending, especially if
you're not careful about managing your purchases. Before applying for a card,
then, assess your spending habits and ensure you have the discipline to use the
credit responsibly. If you often find yourself overspending and exceeding your
income, it may be better to hold off until you can develop healthier financial
habits.
7) Your Understanding of Interest Rates and Fees
When
you own a credit card, you need to fully understand how interest rates and fees
can impact your financial situation. If your income is just enough to cover
minimum payments, it's possible for high-interest charges to quickly add up and
make it difficult for you to pay off your balance.
Take
the time to learn about how credit card interest works and what fees may apply.
Opting for a card with a lower interest rate or no annual fees can help reduce
costs, making it easier to manage payments with your current income level.
8) Your Comfort with Additional Financial Responsibility
Finally,
it's important to assess your own comfort with the added financial
responsibility of owning a credit card. After all, a credit card is not only a
tool for convenience, but also a serious financial commitment.
Ultimately,
if you're unsure about your ability to manage payments, control spending, or
avoid debt, it may be worth delaying your application until you feel more
confident in your financial management skills. Educating yourself about credit
card terms, creating a budget, and practicing good financial habits can help
you feel more prepared to handle the responsibilities that come with your first
credit card and other succeeding cards.
Again,
credit cards can be a valuable asset for building credit and managing your
finances, but they also require careful management. Be honest about how you
assess your current income and the other factors listed above so that you can
ascertain how ready you are for the responsibility of making regular credit
card payments. Treat the opportunity to own a credit card as one to practice
financial discipline while enjoying the said card's convenience and benefits.
