Tuesday, March 24, 2015

Low Credit Limit Credit Cards

Keep your credit card limits low, and you'll never get into credit card debt trouble.

I have two credit cards now. one for work and one for personal use.  Both have $5,000 limits and interest rates of about 7.15%  No miles, no gimmicks, no cash-back.   It is very hard to get into trouble with such cards.

It is tempting to have higher limits, and when I was younger, I thought, "Gee, I must have good credit and be going somewhere, because I had lots of credit cards with $10,000 and even $20,000 credit limits!"

 And this is not hard to do in America.  The credit card companies raise your limits, intentionally, to a point where you would be in trouble if you ran up that much debt.

You have to call them as ask them to lock your credit limit.  Do it.  If they refuse, find a new card.

The nice thing about a low limit, is that it is impossible to run up too much debt.  If you start charging a lot, well, your available credit drops, and this in turn, forces you to stop charging, or to pay down the balance.   It acts as a feed-back loop prevent over-spending - a positive feedback loop.

With a $20,000 credit limit, it is all-too-easy to let the balance get larger and larger and larger, like a wobbling washing machine, until one day you wake up and realized you have more credit card debt than you can ever pay off.

What is a good limit to have?  That depends on your income.   For anyone making $100,000 a year or so, a $5000 limit is reasonable.  For people making less money, the limit should be proportionally smaller.

Credit card debt is a game anyone can pay.  The middle-class person struggles to pay off $50,000 in credit card debt.  The poor person struggles to pay off $5,000 in debt.  Both see their situation as intractable.

Keeping your credit limits low helps keep you from spending.   It is a smart move to make, as it keeps you out of trouble
Oh, wait, you've decided to rely on "self restraint" to keep yourself out of credit card debt?

Smart move.  Let me know how that works out.   Sadly, I know all-too-well, how it does!