Many of us have credit cards and from time to time our lender may decide to offer an extension on the credit limit on the card. You may think that this is a fantastic thing as it means that you will be able to spend more money on the card, but it may not be such a good idea. It is wise to think about the consequences of having this opportunity.
To start with there is a big risk factor. If someone steals your card or gets hold of your credit card details, they could go shopping with your card. The higher your credit limit; the more money they could potentially steal from you. Although most credit card companies offer some protection against this and try to recover the money spent and get it back to you, there is always a risk that they will not be able to do this and you will have to foot the bill.
The second risk is one from the card holder(s). If there is a large credit limit then they will be able to spend more money on it should they want to. This means that they would be able to get into a lot more debt. You may think that you will be safe as you had good self-discipline and you will just keep the extra allowance for emergencies but you could find that you end up spending money just because it is there.
If you clear the whole balance each month then you might think that this will help you out as you will not be piling up the debt or paying interest. However, if you spend more money than you can afford to repay, because your credit limit is so high, then you could be in trouble. You will have to make sure that you keep a close eye on your spending to make sure that this does not happen.
Many people only spend minimum amounts on their credit card and think that having a bigger credit limit will make no difference. However, you never know if you might be tempted to spend a bit more, because you know that you can and then get into trouble paying it back. It is worth considering how you will pay back the extra money before you start spending more on there.
If you only pay back the minimum each month, then you will already be paying back large amounts of money in interest. If you extend your credit limit and spend that money then you will be paying out even more in interest payments and this could be extremely costly. It is easy to ignore these payments going out and think that as the interest is affordable it is all okay. However, if you take the time to calculate how much you have actually paid out in interest payments over the years, you could get quite a shock as to how much you have paid. This is where having an increase to your credit limit could be a big problem as you could end up building your debt up to such a high level that it becomes overwhelming and you wonder whether you will be able to pay it back at all.
Of course, there are some advantages to increasing your credit limit. You may like the convenience of using your credit card during the course of the month and then paying it all off in one go when you get paid. This can be extremely convenient and as prices increase overtime, it could be extremely useful to have an increase in the credit limit so that you can continue using the card as you always have done.
It is worth thinking hard about your credit limit though. A card issuer may just automatically put up the credit limit and if you want to reduce it you can contact them and ask them to do so. You could perhaps ask them not to put it up so high as they have or something like that too. They should be pretty flexible and you should be able to negotiate with them so that your credit limit is at a level that works well for you.
