In this era of the Great Recession (yes, Business Week refers to it as such), there are many of us struggling to repay our existing credit card debt. While this may be the norm for many of us, I understand that there are others out there that are willing to take the “credit plunge” and apply for their own card. As with anything, there are many out there from which to choose; just be sure to choose wisely, because a misinformed or hasty decision could cost you dearly.
Now, in a perfect world, we would use the card for purchases and then pay off the balance at the end of each month. This is the best way for all of us to use these cards, because you get the convenience of being able to make purchases without cash, yet you do not have to pay interest to the credit card company. However, this is not a perfect world and most of us end up using the cards and only paying the minimum balance due. This is exactly what the companies’ want, because this is how they make their money. The first thing you should look for in a credit card is the APR or Annual Percentage Rate. This is the rate that the company will charge you for the use of their money. Obviously, you want to find a card with the lowest rate, somewhere below 15% would be reasonable. The better your credit score, the lower the rate you will be offered. You should also be aware that many companies will offer an introductory rate, which can last anywhere from six months to a year. After this rate expires, you will then be bumped-up to the regular rate. With regards to the APR, you must also read the fine print and discover what the penalties are for Late Payments. If a payment is late, the company may have the option of cancelling the introductory rate and raising the standard rate to as much as 24%, if not higher.
The next item to consider is whether or not you want to pay the company even more for the privilege of using their card, which comes in the form of an annual fee. Since I feel that I am already paying them enough through their interest rate, I would suggest you try and find a credit card with no annual fee. If you have a decent credit score, you should not have a problem finding such a card. If your current credit card company charges you an annual fee, I would suggest negotiating with them to drop the fee. If they don’t, drop them and find another company (If you have a long-standing relationship with the company, this may hurt your credit score).
If you are looking to consolidate your debt from many high-interest rate cards to one lower-rate card, than you will want to find a company that offers 0% balance transfers. Finding such a card can literally save you hundreds of dollars in fees. Just be sure that you will be able to make the monthly payments on your new card, because even one late payment can see your wonderfully-low rate skyrocket to over 21% (or more). If you are looking into debt consolidation and you are a homeowner, another option to consider is a home equity loan. Because these are secured loans, they are often offered at lower rates; however, these loans are secured with your house, so be very careful when considering them.
As you decide on your new card company, please be sure and read the fine print in the contracts. Yes, it is tedious, but it can save you much heartache later. I have tried to cover a few of the points you should look at when choosing a credit card company. If you come across something that you need assistance with or clarification on, please let me know and I will try my best to help you. One final thing to remember: although credit can be your best friend, if not treated properly and with respect, it can turn into your worst enemy.
Showing posts with label credit. Show all posts
Showing posts with label credit. Show all posts
17 May 2009
15 February 2009
Tips on Reducing Your Credit Card Debt.
You don't need me to tell you that these are tough economic times. Unless you are one of the few who have millions of dollars lying around (please feel free to send some this way), chances are that most everyone will be affected by it. Although it will be difficult to see our way through to the end, it will be even more difficult for those who are already deep in debt. If you do fall into this category, let me just say that you are not alone and, through some old fashioned hard work, we can get ourselves back on track.
The first thing that we need to do is make a budget. I know that this is not the most fun thing to do, but it does need to be done. Gather together all your bills and calculate your monthly payments. I understand that some of your bills may come quarterly or annually, so you will need to break those payments into monthly amounts. I would also suggest that you keep a spending diary; that way you can keep track of your daily expenses. Creating a budget is the first step in credit repair. Doing this, will give you a visual picture of your financial situation and allow you to decide on how next to proceed. Once you have a clear picture of where you stand, you will be able to begin the process of prioritizing your bills.
Now, on to the next important step: prioritizing…For me, housing is the number one priority, so my first payment of the month goes to the mortgage. Next, if you have an auto loan, that would be number two on this hit parade. We next need to assign priorities to your credit card payments. Although you may be tempted to try to tackle the largest bill first, try to avoid that temptation, because in order to fix credit problems, you will need to take a systematic approach. First, write down the minimum payment, interest rate, and total amount owed from each card; this you will keep for your personal records. Next, find the card with the highest interest rate and the one with the least minimum monthly payment. If there is less than a thousand dollars difference between the total amounts owed on the two cards, then you should start concentrating on the card with the highest interest rate. If however, there is more than a thousand dollars difference, put your focus on the card with the smallest minimum monthly payment.
Next, you will want to order your cards in terms of minimum monthly payment: from least to greatest. Here is how it will work: as soon as the first card you are working on is paid-off, you will take the payment you were making on that card and apply it to the next card on the list. For example, let’s say that the first card had a minimum payment of $100 and the second card in line has a payment of $150. Once that first card is paid-off, you will add that $100 to the $150 of your next card and apply the total $250 to that card. Once that card is paid-off, you will apply that $250 to the next one, and so on. I know from experience that this is a very slow process at the start. However, after the first one or two cards are paid-off, the process will go much faster. Please try to keep in mind that you are making a difference, however small it may seem at the time.
If you find yourself in a situation where you are already starting to be late in making your payments, please contact the credit card agency and talk with them. Tell them your situation and explain what you are trying to do. Let them know that you have made a budget and are currently working to pay your debts. Most agencies will be willing to help you; after all, they want the money you owe them. Working to repair credit problems is a long and arduous process, but there is outside help available if you need it. There are Consumer Credit Counseling services available and they are free of charge. They will work with you in adopting a budget and some will even negotiate with the credit card companies for you. Check your local area for the service near you. There is no reason to pay someone to help you get out of debt, when there are private agencies that are willing do it for you. Yes, you may have to attend budgeting classes, but is that such a large price to pay? Besides, you will be learning a valuable skill that you can use for the rest of your life.
As always, if you need help or just want to talk, please feel free to contact me. I will do my best to assist you. We are in this together and together we can win.
The first thing that we need to do is make a budget. I know that this is not the most fun thing to do, but it does need to be done. Gather together all your bills and calculate your monthly payments. I understand that some of your bills may come quarterly or annually, so you will need to break those payments into monthly amounts. I would also suggest that you keep a spending diary; that way you can keep track of your daily expenses. Creating a budget is the first step in credit repair. Doing this, will give you a visual picture of your financial situation and allow you to decide on how next to proceed. Once you have a clear picture of where you stand, you will be able to begin the process of prioritizing your bills.
Now, on to the next important step: prioritizing…For me, housing is the number one priority, so my first payment of the month goes to the mortgage. Next, if you have an auto loan, that would be number two on this hit parade. We next need to assign priorities to your credit card payments. Although you may be tempted to try to tackle the largest bill first, try to avoid that temptation, because in order to fix credit problems, you will need to take a systematic approach. First, write down the minimum payment, interest rate, and total amount owed from each card; this you will keep for your personal records. Next, find the card with the highest interest rate and the one with the least minimum monthly payment. If there is less than a thousand dollars difference between the total amounts owed on the two cards, then you should start concentrating on the card with the highest interest rate. If however, there is more than a thousand dollars difference, put your focus on the card with the smallest minimum monthly payment.
Next, you will want to order your cards in terms of minimum monthly payment: from least to greatest. Here is how it will work: as soon as the first card you are working on is paid-off, you will take the payment you were making on that card and apply it to the next card on the list. For example, let’s say that the first card had a minimum payment of $100 and the second card in line has a payment of $150. Once that first card is paid-off, you will add that $100 to the $150 of your next card and apply the total $250 to that card. Once that card is paid-off, you will apply that $250 to the next one, and so on. I know from experience that this is a very slow process at the start. However, after the first one or two cards are paid-off, the process will go much faster. Please try to keep in mind that you are making a difference, however small it may seem at the time.
If you find yourself in a situation where you are already starting to be late in making your payments, please contact the credit card agency and talk with them. Tell them your situation and explain what you are trying to do. Let them know that you have made a budget and are currently working to pay your debts. Most agencies will be willing to help you; after all, they want the money you owe them. Working to repair credit problems is a long and arduous process, but there is outside help available if you need it. There are Consumer Credit Counseling services available and they are free of charge. They will work with you in adopting a budget and some will even negotiate with the credit card companies for you. Check your local area for the service near you. There is no reason to pay someone to help you get out of debt, when there are private agencies that are willing do it for you. Yes, you may have to attend budgeting classes, but is that such a large price to pay? Besides, you will be learning a valuable skill that you can use for the rest of your life.
As always, if you need help or just want to talk, please feel free to contact me. I will do my best to assist you. We are in this together and together we can win.
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