When people borrow money in today’s financially burdened society they are faced with leverage obstacles never before seen since the depression. People use what they have got to get more, and use both to earn higher investment income in hopes to generate larger capital growth. Not only is this technique effective, it’s also reinforced by government tax policy.

But, what does all this mean?

Basically, if you are going to borrow money, either you a) want to strategically borrow using other people’s money as part of your wealth building program, or b) you need money to pay unexpected costs. These are the only two good reasons to borrow money. Flexibility and choice, however, raises a question you must ask yourself: Which is the better strategy? The answer lies in a list of cautions when using leverage.

If an investment seems to have good potential returns, after taking interest payments and taxes into consideration, you can afford to carry the loan, then borrowing to invest is a reasonable risk.

Wherever you look in the world of investing, it is unlikely you will find something for nothing. The greater the risk you are willing to take, the greater your chance for large profits. When you look at it another way, lending your money, or invest in debt, you expect to receive some benefit in the form of interest. And, you expect to get all your money back at some point.

Simply put, your money is in a savings account, and you are saying to the bank, “I want to lend my money in the form of deposit, but I make no commitment as to how much or how little I will lend, or how long I will leave it with you. I also want you to guarantee to pay me back all the money I put into deposit.” Although the probability that you will get all your money back is very high, your level of risk and return on investment is very low.

On the other side of the coin, for example, if you invest in equity by buying shares of a venture, you are accepting a much higher risk. There is no guarantee of growth, and you could lose your entire investment. Most investments, whether they are in debt or in equity, fall in between two extremes. Only you can decide how much risk you want to take and what kind of risk it will be.

One of the most important things to remember when borrowing money, even if you don’t need the money, is to establish a credit rating. You then repay the loan promptly. The argument is that this will establish you as a good credit risk and will enable you to borrow more easily in the future if you need money for an emergency.

A simple analysis will give you a better idea whether you are in the position to borrow money. Enter the following:

The figure on line 8 is the amount of additional repayment which experts say you could afford each month. It’s based on the commonly used criteria that no more than 35 percent of household gross pay should be earmarked for debt repayment. This is the absolute maximum you should commit to debt repayment. You can try 25 or 30 percent conservatively, if you feel this will not leave you strapped or compromise your lifestyle.

Well managed borrowing can be an immensely powerful way to build your wealth, or take care of unexpected expenses.

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If you can momentarily think of plastic as another source of instant cash that you already have put away somewhere, then you are set to beat credit card psychology. The real eye opener to save a lot of money using credit cards is by limiting the use to categories of spending.

Use of instant money for limited premeditated purchases and looking at credit cards as the last resort is the key. You can control this by taking a long hard look at what it’s costing you to carry around those credit cards in your wallet. To do this, simply create a chart on a piece of paper.

Start by drawing three vertical columns. In the first column, enter your user fee for the credit card(s) you carry. In the second column, enter your interest charges for the last 12 months for each card. In the third column, enter your annual cost for carrying the card by adding column one and column two. Then total all your credit card costs at the bottom.

If the number at the bottom is a shock to you, then it’s time to take action!

To better understand credit card institutions and how they function, there are three basic types:

1. Bank Cards like MasterCard and Visa charge a yearly fee of up to $35 or more, with an average of $18. Interest rates vary from state to state with an average around 16 percent.

2. Travel and entertainment cards like AMEX and Diners Club charge annual fees ranging to $350. Typically, you pay off what you owe each month with no finance charge.

3. Department store cards have their own cards, and they do not charge an annual fee, but do often charge interest rates higher than bank cards – amazingly up to 24 percent.

Credit cards have always been, and always will be money makers for financial institutions. Besides the high interest they charge the consumer, they receive another 1 to 6 percent in account service fees from merchants who buy a credit card franchise. It’s no surprise when you become Pre-Approved for a new credit card. The financial institution is poised to make a whopping 24 percent or higher by extending your credit.

Credit card lenders make it easier for you to pile up your debt by offering to let you pay off only a small portion of the outstanding balance each month. These smaller payments will allow you to hold more cash each month, but this adds up to be a unwanted major expense.

For example, you have a balance of $500 at the beginning of the month and the credit card company allows you to make a minimum payment of $35. During the month, you charge another $100. The interest on your account is 18 percent, which is computed as 1.5 percent of the unpaid balance. The interest charges are added after you make your payment, however, many credit card companies compute interest on the average daily balance, which result in even higher charges.

Your minimum payment sends your balance to $465. Adding the interest raises it to $471.98, and your new purchases take it to $571.98. If you make another $35 payment, the next month’s interest charges will be based on $536.98. For the second month, your interest will be $8.05. This is nearly one fourth of your minimum payment, which is interest on top of interest. If you continue to charge more than you pay off, you will continue to accumulate interest on interest, as well as on your charges, you’ll soon discover there’s no chance of paying off the debt.

As long as you are making the minimum payment on a regular basis, the credit card lender will encourage you to borrow more, even offering to raise the maximum line of credit, especially if you get too close. To get a handle of the situation, make a checklist for categories of spending.

a) If you carry multiple credit cards, keep only one bank card, one travel card, and the most useful department cards. Destroy the rest. Carrying multiple cards only encourage unnecessary spending.

b) Avoid upscale cards that has prestigious appeal with gold, silver, or platinum higher line of credit packages. They charge higher interest rates for that line of credit, which is by no means a bargain.

c) Shop around for bank cards, even though they are the same, what you pay for them is not. Some charge no annual fee, while others up to $35. Some charge less than 6 percent interest, while others charge 24 percent. The highest annual percentage rate is often charged by major bank card advertisers, which you bear the cost in user fees.

d) Apply for a credit union credit card. They usually offer more favorable terms than bank cards, however, they do require a membership with other value benefits for premium use of their card.

e) Pay the full amount back that you charged – every month. Take advantage of paying off your balance to avoid finance charges.

f) Do not use department store cards for big tickets items. If at all possible, borrow the money from a bank at a lower rate.

g) Compare credit card’s finance charges with others you may have. While these charges may vary, your bank card might be lower than your department store card.

To save more money and reduce credit card costs, try not to charge more than you can pay back in a month. If a larger amount is charged, don’t just make the minimum payment, pay at least 40 to 50 percent of the outstanding balance.

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It’s just not enough to work hard for your money. In order to grow more wealthy than you are now, you must start making your money work harder at your bank.

Start from where you are now and eliminate any kind of service charges. Read over your bank statement to see how much you are being charged, and for what specific services. Talk to other banks and compare what they charge for the same services.

You may find your bank may offer you a better deal. For example, you opened your checking account with $500 flat fee service charge of $5 per month. Now, its a few years later and your balance may have risen so that you now qualify for free checking or debit cards. Your bank will NOT automatically change your plan as long as it can keep collecting your $5 over, and over. One phone call or a visit to your bank could save you $60 a year.

Never let your money accumulate in a noninterest bearing account, such as some checking accounts. Instead, ask your bank for a checking account that pays interest as long as you maintain a minimum balance.

Set up a money market account, in addition to a checking account. These out pay regular savings accounts with an interest rate tied to movement with the prime rate. You can then write a monthly check to your regular checking account to pay for bills.

Once you have chosen the highest interest account, make regular deposits into it. Put your paycheck and any other receipts into this account. Transfer to the lower paying checking account only the amount needed to cover regular expenses. A realistic goal is to hold on for savings to at least 10 percent of all the money deposited to your money market account.

Consistent deposits are the key. For example, let’s say it’s January 1 and you’ve made a decision to start investing next year at this time. You have set your mind to save $1,000 (plus interest) especially for that purpose. If you’re not used to parting with $1,000 in cash all at once, you may have difficulty meeting your regular expenses.

You can reach your goal by December if you put $85 per month ($85 x 12 = $1,020) into the highest interest money market account, compounded monthly. But, you then start thinking about giving up $85 each month. So, you don’t deposit the $85 for the entire 12 months. In December, you get more at ease and put $1,000 into your money market account. Sounds great right?

You have the investment money you promised yourself and you haven’t lost a penny, or have you? December is the twelfth month of your savings year. Due to the way interest is truly computed for example, your $1,000 will earn one month’s worth or 5.5 percent, or $4.58 (1/12 x .055 x $1,000).

Compare this with regular $85 deposits, January through December, earning 5.5 percent in that same money market account. If you desposit $85 per month, you get a total of about $26 in interest. This may not seem like a lot of money, but look at what $26 really is: almost one third of one month’s $85 deposit. Money that you don’t have to earn for your money market account.

Look for other investment alternatives in the accounts department. Checking accounts are fully liquid, however, they are designed to hold only small amounts of money. If you have the minimum required, and you can get along with less liquidity, put a larger sum of money into a six month or one year CD or short term government securities – term accounts. These overlooked vehicles pay rates higher than regular savings or checking accounts and offer almost immediate liquidity.

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