I’m not quite sure what you’re asking – are you looking for a credit card to make everyday purchases, or trying to transfer a balance and pay it off over time?
Either way, the question to ask isn’t “what is the perfect credit limit for me?” but “what are my financial goals, and what can I afford?”
If you can only afford to pay $100 a month to a credit card company, then you shouldn’t spend more than $100 a month on your credit card. It’s as simple as that. Your credit limit could be $100 or $100,000 – you still can only afford to put $100 worth of purchases on your credit card each month.
If you are looking to transfer a balance and need to know what the minimum payment would be, depending on your balance, then here’s what you need to know: credit card companies usually set their minimum payments somewhere between two and five percent of the total balance. At the lowest possible rate of two percent, a balance of $5,000 would have a minimum payment of $100. So, you can have a credit limit of $5,000, max out your card, and pay $100 each month, right? Wrong.
What’s the catch?
First of all, what’s your APR? If you only pay the minimum, you’ll be charged interest on the remaining balance, so your total balance won’t get any smaller. Depending on how high your APR is, you may not even make a dent in that $5,000 balance. Are you willing to keep paying $100 a month for the rest of your life, until you’ve spent ten times the amount of your original purchase, all in interest charges? I didn’t think so.
Then there’s the matter of your credit score. To keep your credit score healthy, you should keep your credit utilization rate under 30 percent of your available credit limit. That means if you have a credit limit of $5,000, you shouldn’t use more than $1500 of it. If you can only pay $100 a month, you shouldn’t even use that much.
Remember, credit cards aren’t meant to help you afford things that are out of your reach otherwise. They are a tool to help you manage your finances – not a blank check. Asking “what is the perfect credit limit?” is the wrong question. Instead, ask yourself what you can afford, and what you hope to get from your credit card. Then we can help you find the perfect credit card for you.