Credit Management Vs Cash Management


If you are having difficulty with your credit, using credit at all may be the furthest thing from your mind. It is completely understandable why you might want to deal only in cash, eschewing products as innocent as debit cards or prepaid gift cards. However, this is a fairly dangerous way of thinking when it comes to your financial future. Successful credit management makes it possible for you to take out loans such as auto or home loans. It also makes it more possible for you to lease, get a job, start your own business, or pursue higher education.

While credit management is critically important to your long-term financial success, you should not allow cash management to fall by the wayside. The best financial plan includes effective credit management and cash management. As a liquid asset, meaning it is quickly accessible, cash gives you the means to respond quickly to an emergency situation while you develop a plan with your financial institution or financial advisor to access the credit that you need. However, because returns are generally smaller with successful cash management the time spent on it is relatively insignificant when compared to the management of your credit.

In 2003 the Federal Reserve Board recommended several steps for good credit management. These steps are excellent to take whether you have struggled with poor credit in the past or not. These steps are:

* Building savings to avoid high-cost debt and improve payment options

* Paying your bills on time

* Pay more than the minimum payment

* Comparison shop for credit and obtain only the credit you need to meet your goals

* Understand your credit history and how it affects you

These steps are fundamental to developing a good credit history that establishes your credibility with financial institutions and credit reporting agencies. It is also important to spend more time on managing your credit because of the disastrous effects of a poor credit score on your life in general. A poor credit score can affect your car insurance premiums, loan interest rates, and other bills. Property management companies may charge you more in rent, or choose not to lease to you at all, if you have poor credit history. You may also have a challenging time gaining some types of employment, as many employers run a credit check prior to your start date. In the bigger picture, the Federal Reserve Board has also pointed out that using these strategies benefits the economy run more efficiently in the long run and help everyone to be more successful.

In the long run, successful credit management will improve your quality of life drastically. Indeed, much more than successful cash management. Having a good credit score, or making clear progress toward improving your score, allow you to access higher education, start your own business, obtain gainful employment, or become a homeowner. Successful credit management will also give you negotiating power when it comes to loan interest rates. Overall, credit management is crucial to enjoying a rewarding financial life.

Source by Pete Morgan

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