When you take out a credit card or take an overdraft, you may have some choice as to how high to set your credit limit. Most people will just keep it at the level that is recommended by the lender but this is not a good idea. It is wise to think about how much you will need and then negotiate the amount with them.
The reason leaving the credit limit to the lender is such a bad idea is because it is likely that they will set it too high. It may seem good to have all of this extra money at your disposal and that is exactly what the lender wants you to think. However, this can lead to you borrowing more money than you actually need.
It is a common mistake to think that credit is money that you should spend. Although that money is available for you to use if you need it, you need to remember that you will have to pay for it. You will not only have to pay back that money but you will also have to pay the interest charges and fees for borrowing it and these can really add up. With credit cards and overdrafts, it is easy to ignore the fees. They get added onto what is owed and you could find that you are not even aware of what they are and how much you are paying or have paid in the past. This is what the lenders want, they want you not to notice that there is even a fee for borrowing the money so that you do not pay it back and you keep giving them more.
The more money that you borrow; the higher the cost of borrowing. This means that if you have a high credit limit, then you will be able to borrow more money and if you do, you will end up paying out more to the lender to do so. Consider carefully whether you want to risk being able to do this. You need to consider carefully whether the temptation of having this money available to you will mean that you use it and then end up paying the price.
Think hard about why you are organising this debt and what you want to use it for. Make sure that the credit limit is in line with this reason and that you only make available the amount of funds that you need. Ask the bank to not make any extra funds available to you so that you do not get tempted to borrow even more. It may even be wise to ask them to get rid of the means of debt once you have paid it back so that it is very difficult for you to borrow money again in the future. Banks tend not to do this automatically so you may need to telephone the customer services and speak to a manager or go to a branch to discuss it. You may need to keep an eye on things as they may increase the credit limit without telling you. If they do this you can ask them to put it down again. You may even find that it will be better if you cancelled it altogether once you have paid it back so that you are not tempted to use it again.
Some people enjoy the comfort of having some spare funds available if they need them. Although there is nothing wrong with this in principle, it can become a problem if those funds tempt you to borrow money unnecessarily. By this it is meant borrow money to buy items that are not necessities when you could have waited until you saved up the money in order to pay for them. Only you will know how likely you are to use the money sensibly or whether you will be tempted by it. There is no shame if you are likely to be tempted, many people would be. But if you can identify that his might happen to you, then you will be able to make sure that you do not borrow more than needed or perhaps you may decide that it would not be wise for you to borrow any at all.
So it is a good idea to make sure that you are not able to borrow more money than you need. This means that it is wise to make sure that you ask the bank to keep your credit limit low, so that you can only borrow the amount of money that you need. You will know how important this is depending on how likely you are to spend more money than you can afford just because it is available to you. Once you have paid it back, then it could be a good idea to cancel it so that you are not tempted to borrow more.