Credit line shouldn't be viewed as part of your income

By Jeremy M. Simon

Too frequently, consumers view their credit card's line of credit as they do their own paychecks -- as 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.  That kind of thinking 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 from  paying with a debit card or prepaid debit card, which either draws money directly from the consumer's checking account or from an amount of money preloaded 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.

Related calculator: "What will it take to pay off my balance?"   

Published: September 19, 2006

	Three most recent Credit account management stories: Credit card issuers' customer service phone numbers, websites – This is a list of customer service phone numbers and websites for many of the nation's top credit card issuers ... 5 reasons you don't really want to win all that lottery money – While it's fun to daydream about it, winning a lottery fortune comes with risks, responsibilities and a flood of moochers, fakers and false friends ... Lost your credit or debit card? Want it fast? Expect to pay – As banks look for new ways to make money, some have started charging to replace lost credit or debit cards. Want it in a hurry? It'll cost even more ...

	CreditCards.com's newsletter Did you like this story? Then sign up for CreditCards.com’s weekly e-newsletter for the latest news, advice, articles and tips. It's FREE. Once a week you will receive the top credit card industry news in your inbox. Sign up now!