Category Archives: Credit cards

4 Questions to Ask When Considering a Credit Card

Credit cards can be incredibly useful; all through high school I had one with a small ($500) limit that I was to use “for gas only.” Now, needless to say, my family never taught me good money management skills (sadly, my mom was almost $15,000 in credit card debt at one point), so I had to learn on my own, as I’ve mentioned before. It’s taken a long time to get from point A to point B, but I feel like I finally have a grasp on how to properly use a credit card. Took long enough, right?

Credit cards are a finicky subject for a lot of people. Some people say you should get one to establish credit; others shun them off entirely. Some people think that they can help with teaching responsibility, others think that they open the door to being irresponsible.What kinds of questions should we be asking when it comes to getting a credit card?

So, here are some tips and tricks for choosing whether or not you should get a credit card, and if so, then what you should be looking at. Today, we’re going to look at 4 things you should ask yourself before getting a credit card.

  1. What am I getting it for?
    Am I getting the credit card to establish credit? For emergencies?  To just get something that I want right now instead of waiting until I have the cash? Make sure your reasoning is the right reasoning; if it is more based in materialism than necessity, you may want to reconsider getting a credit card at all.
  2. What is the interest rate?
    Interest rates will make or break you. Some companies charge as much as 25% interest. Some companies will also offer 0% interest for a certain amount of time. You should ALWAYS read the fine print and see how long this period is for.
  3. Are there any fees or hidden costs involved?
    Some credit cards make you pay a certain fee monthly or annually. This is another case of “read the fine print.” You may be getting roped in to something you’re not ready for.
  4. Can I afford to make monthly payments/Can I pay more than the minimum?
    Can you afford another bill, or will it burden you to have that other bill? Also, I ask if you can pay more than the minimum because you could pay up to twice as much as you originally paid for anything you put on a credit card if you only pay minimum payments. These are important to think about.

These are just a few things to think about when considering a credit card. The average American is at least $5,000 in credit card debt, because Americans allow their spending to get out of control and don’t keep track of what they are spending. So, keep these things in mind when applying for any credit card.

What have you asked yourself when looking for a credit card? Have you ever gotten a credit card and then later regretted it? Share your stories in the comments, have a great week, and we’ll see you back here next week!

3 Ways People Abuse Credit

Credit abuse; it’s not likely to make the papers or end up in a courtroom (even though it can), but it’s a chronic issue in the United States today. The issue is exacerbated by the fact that even our government is billions of dollars in debt and continues to dig itself further into it! Seems like a lot of people abuse what credit they have, and their credit scores are lackluster because of it. Today, we’re going to explore three of the ways that people abuse credit and what we can do about each of them.

  1. They try to live off of it. Please don’t do this, ever! Some people use their credit as a rolling source of income, and it’s not actual money. When this happens, those same people are wasting hundreds of dollars throughout their lifetimes because of extra fees and the insane amounts of interest. It also demolishes your credit score; making heavy use of your available credit and maxing out your credit cards results in a lot of red marks that lower your overall score. Instead of living off of it, why don’t you consider adjusting your budget (which often means adjusting your lifestyle a well) and cutting costs so you don’t feel like you have to live off of your credit?
  2. They try to hide stuff with it. This is one of the saddest things that people do to abuse credit. Many times, instead of using a bank account that a spouse or loved one would have access to, someone will use a credit card that only they have access to in order to hide an addiction or affair. It’s usually a sign that, whatever the situation is, it’s gotten out of control and help is needed in order to get out of it. If this is you, please talk to your loved ones and seek out help before it becomes bigger of a mess than it already is.
  3. They avoid it entirely. You’ve never owed a dime in your life. That’s great, but what if you end up in some situation where you would need to, like in the case of buying a home? Unless you’re going to be saving money and living in an apartment for 20+ years (which, some people do, and that’s okay), you’re going to have to borrow something. Then, they’ll look at your credit score and it really won’t be that great because there’s nothing there. A lot of people avoid it because they’re afraid of abusing it, but avoiding it is just going to make that problem worse in the long run. If this is you, consider getting a credit card with your bank or credit union and utilizing it on occasion, paying it off immediately when you do. This allows you to build a credit history and also helps you be more comfortable with the idea of having credit.

So, don’t abuse or neglect credit. In the long run, it’ll end up destroying you if you don’t change whatever bad credit habit you have now. Have a great weekend!

7 stupid things we do with credit cards

Suzie got a credit card when she turned 16. Yeah, that wasn’t the brightest idea ever. It was a joint credit card with her mom, who wasn’t incredibly financially-savvy herself. She frequently maxed it out (thankfully it was only $500, but still, the point remains) even though it was meant “for gas.” For gas turned into “for everything.”

Suzie’s mom is an example everyday mishaps where we can be too “trusting” to our kids. What was originally meant as a lesson turned into a disaster. Today, we’re going to look at seven stupid things we do with our credit cards.

  1. Give them to our kids. As exemplified by Suzie’s mom, giving a credit card to your kid is a bad, bad, BAD idea. Well, if you don’t set limits. A kid using a card that you can control, or one of those debit cards that have a set amount on them that you have to refill can be an awesome idea for teaching kids how to use money and budget appropriately.
  2. Use them to pay bills. Great idea, let’s pay bills with them and then pay interest, when our bills wouldn’t have interest. Now, if you’re in a jam one month, it’s okay, but to always use it is foolhardy.
  3. Transfer balances again… and again… and again… We bounce between different companies. Why? Because we’re trying to get the best rate. But, this can affect your credit score adversely. It can also tempt you- if you transfer a balance and don’t get rid of a card (which I’ve done!), you end up maxing out both of them. Speaking of maxing a credit card out, look at the next stupid thing.
  4. Use all of your available credit. Did you know that this adversely affect your credit? Yes. I remember getting my FICO score for the first time and it said “heavy use of available credit” affected my score. I had 3 cards maxed out. Always give yourself some space, because your credit availability ratio* is a big part of your credit score.
  5. Paying only the minimum. The minimum payment on your credit card is mostly interest. If you do this, watch how much… well, how little your balance goes down. It’s not much at all. You’re usually paying more interest than you are principle. Instead, pay a little more than the minimum if you can.
  6. Using them when we actually have the money to pay for things. This was a dumb mistake I made until a few years ago. I would charge stuff so I could “have the money” in order to buy other things. Now, if you are going to dinner somewhere that you know only takes cash, that’s totally understandable that you charge something earlier in the day. Just don’t make it a habit.
  7. Dispose of them the wrong way. Cut it up, destroy it best you can. Too many times we just toss them, and if our signature is on there, you have the risk of people taking it and using it. Make sure that it will be near impossible for people to get your card information.

Remember, your credit score is a huge part of your life, from getting a house to getting a car to getting good rates on other types of loans. If you’re stupid with your credit card, your credit score will reflect it for a good long time. So, be smart with your credit card and spend wisely to keep that score where it truly reflects you and your spending habits.

*Credit availability ratio is your available credit compared to your total credit. If this is equal or close to equal, it can totally kill this ratio and hurt your credit score.

How do I know I have Debt Issues?

Debt issues run rampant in the United States. This is one of the main reasons that the US went into a bit of an economic mess throughout the beginning of the 21st century. Credit was incredibly easy to get, and because of that, people got a lot of it. As the stock market started to struggle, people were unable to pay their debts off, banks started to have issues because more and more people were not paying their loans off, and then the economy kept going down and down. People are slowly trying to get out of debt, so while the market struggles from a lack of new purchases, the economy is very slow on the upswing.

One of the biggest problems with this is that people didn’t realize that they had a debt issue. Since it became commonplace, people used the thought process that their debt wasn’t as bad as anyone else’s. I had this issue; I was only $3,000 in debt, not a big deal, right? Wrong! Here are some ways you can tell you have a debt problem.

  • Rotating minimum payments. I was $3,000 in debt for a long time. Why? Because I’d pay the minimum payment only, and on top of that, I’d normally put back on the card the amount of money I spent on a payment. If you’re doing this, the rest of your budget is obviously not working. You shouldn’t have to do this if your budget is balanced.
  • Your debt load is more than 20% of your income. This is the high end of the suggested average. If your debt is more than 20% of your annual income, think about all the money you’re wasting on interest and paying off your debt.
  • You use your card no matter what. Even if you have the money to buy groceries, you whip out the credit card. Not only is this bad practice, you may have an addiction to using credit.
  • You don’t know how much you owe. This is a huge problem. If you’re throwing out random numbers just to get inquisitive people off of your back, you may have a lot more than you think you do.
  • You have no savings. It makes sense doesn’t it? If you’re swimming in debt, you’re not going to be able to save a dime.
  • Necessities get pushed off because you’re too far in debt. I had this issue at one point; I had to go to the doctor for a severe knee injury, but I kept pushing it off because my debt controlled my life. Don’t let this happen to you; the last thing you need is for something horrible to happen and not be able to pay for it.
  • You’re borrowing a lot of money. At one point, I owed friends and family around $500. I would ask different people for that money so they wouldn’t suspect anything. Does your situation sound similar? If you can’t even afford to live and have to bum off everyone, it’s time to rethink things.
  • You’re barraged with phone calls and notices from creditors and collection agencies. This is probably the most obvious. If places that you owe money are stalking you to try and get it, you probably have a big issue with your credit.

There are lots of ways to get help with your debt. Make sure to check out any and all counseling agencies or debt reduction agencies before you use any of their paid services, but if you need help, don’t be afraid to go after it.

Credit Card Tips for Dimming your Debt

Debt is a pain. Seriously. With American culture the way that it is, debt is a normal part of life, but it doesn’t make it any less of a pain. Are you one of many Americans who are trying to reduce their debt? Good!  Are you just paying extra on your credit cards or do you have a plan? I encourage you to try and make a game plan for getting rid of that extra debt… or preventing it from happening again.

Not in debt? Stay that way!

-  Be responsible with your credit card usage. Have your spouse, another family member, or a friend you trust keep you accountable.

-  Always pay off more than you owe. If you can afford to pay off your balance every month, do it. It’s great for your credit score and it’s a lot less of a hassle in the end.

Already in debt? Get out efficiently!

If you’re paying off several credit cards at a time, always use the system of lowest balance with highest interest first. Then, after that’s paid off, apply those payments to the next lowest balance with the highest interest. Let me show you an example. The numbers are totally hypothetical, and most likely you will not see a card with the interest rates I mention. It’s for simplicity’s sake.

Say you have 4 credit cards:

Credit card A: $400, 5% interest, $20 minimum payment.
Credit Card B: $1000, 10% interest, $40 minimum payment.
Credit Card C: $600, 7% interest, $15 minimum payment.
Credit Card D: $400, 15% interest, $10 minimum payment.

Now, you’d start off with the lowest balance with the highest interest; that would be Credit Card D. Some people would want to finish Credit Card A’s balance first, but think about it, you’ll be paying more in the long run if you pay off the lower interest card first. You start paying $50 a month on Credit Card D and the minimum on the rest of the cards (Tip: If you can do this and pay more than the minimum balance on the others, do it!). In 9 months, you’ve paid off Credit Card D. The other balances should be down a little bit at this point.

You then move to Credit Card A (next lowest balance). You now transfer the $50 a month you were paying on Credit Card D and pay it on top of the minimum payment for Credit Card A. So, you’re now paying $70 a month on Credit Card A. You pay the card off in about 6 months, all the while still paying the minimum on the rest of the cards.

Next is Credit Card C. You take the $70 you were paying per month and pay it on top of the minimum payment. $85 a month is going to Credit Card C.  9 months later, boom, another card down. When you get to Credit Card B, you are now paying $125 a month (which, you were paying in the first place, you just had to split it between 4 cards). You’ll have that one knocked out in 8 or 9 months.

Long story short, you would take debt that, had you paid the minimum payment, would have taken you almost a decade to pay off (and several hundred dollars more than what you actually charged), and will pay it off in about 3 years. And, after you pay them all off, you have an extra $125 a month to do whatever with! Better than owing the credit card companies for the rest of your life, huh?

For Those With Damaged Credit

Sometimes we all make unwise financial decisions or take on more credit than we can handle. Sometimes we acquire bad credit from unfortunate circumstances like going through a divorce, loss of a spouse,  or experience  medical issues that results in the inability to work or excessive medical bills. Regardless how you get into debt, I think we can all agree that its much easier to get into debt than to get out of it.

If you have bad credit, or have no credit history, chances are you can still get a credit card but it will cost you more and the terms will not be as good as those who have good credit. For example you may be approved for a credit card with a $500 credit limit, and you’ll probably pay an outrageous  interest rate, anywhere from 22% to 33%.  If you choose to take the card, use it wisely and make sure to make your payments on time. Keep in mind you’re using this card as a tool to better your credit and not another way to purchase.

If all else fails…get a secured card.

For those who don’t trust yourself or nothing else seems to work, you may want to consider getting a secured card. It’s very simple, you put your own money into a saving/checking account and that amount, or a portion of it, becomes the security of your credit card. If you don’t pay your bills, the card issuer will take the money from your reserved account to pay your debt. It may be hard to come up with the initial amount to deposit but it’s a good way to build a credit history. Since your main goal for using a secured card is to build your credit, make sure that the card issuer reports to a credit bureau, if not, the card is not going to help you build your credit. Many people who have used this method and have successfully made 12 to 18 months of timely payments then upgrade to a regular credit card.

As with any credit card offers, you have to beware of disreputable card issuers, especially with secured cards. Make sure to read and study the fine print before applying. Do not accept any offers from people that contact you about secured credit cards, make sure to do your own research and contact the company yourself. Ask questions whether there are application or processing fees and the interest rates and fees. Generally secured cards carry higher interest rates and higher fees.

…if all else fails , get someone to cosign a credit card.

If you can find a relative or a good friend who is willing to help, get them to cosign on a credit card for you. Keep in mind that if you decide to go this path and don’t make your payments, you can ruin the credit of the cosigner who would have to pay off your debt. So be extra careful, you wouldn’t want to do this to someone who was willing to go out on a limb for you.

Keep in mind that paying the bill in full every month is not necessary, but paying-off the monthly charges, and on time, will eventually prove that you’re no longer a credit risk!

Credit Report and How It All Works

Digging your way out of credit card debt can be an overwhelming and feeling hopeless.  It is embarrassing for friends and family members to know that you’re struggling to pay your bills. You also may be tossing and turning at night thinking about how to get out of your current debt situation. You are not alone. With hard work and discipline, you can work your way out of debt!

If getting out of credit card debt is something you want to accomplish, then there are some basics you need to follow. You need to know what is on your credit report and understand why it is there, develop a plan to pay down that debt, and change your way of spending so that you can avoid repeating your mistake.

The first thing you need to do is to find out what the creditors have on report for you. Why is this important? A credit report is your personal record of your credit payment history as reported to credit bureaus by bank, credit card companies, department stores, and other types of businesses you’ve borrowed from. This is where potential lenders get information that will determine the decision on whether or not they want to take a risk issuing you credit. It’s very important to understand how credit reports work because you can protect your rights and avoid being taken advantage of by credit repair clinic and the so-called credit doctors.

If you are considering on purchasing a home or applying for any other types of loans, you will need a good credit report. It is always good to know what is on your credit report before your lender looks into it, this way you will have the opportunity to clean up any mess or errors you may have on your record. You may also want to consider canceling any credit cards you are not using because lenders will include your credit limit as potential debt. If you have credit cards with no balance but with credit limit totaling $10,000, for example, the lender will consider it as an additional $10,000 of potential debt and may reduce the amount of the loan they are willing to give you.

Whats in a credit report?

Your credit report includes basic personal information such as name, current and previous addresses, telephone number,  social security, date of birth, and current and previous employers. The credit history portion includes information about each credit account, including things like when the account was opened, the credit limit, current balance, monthly payment, and your payment pattern during the past several years. In this report, they also include any bankruptcies, accounts sent to collection agencies, unpaid child support or alimony, tax liens, bounced checks, unpaid traffic/parking tickets, car repossessions, evictions from apartments, court records, and names of businesses or individuals who have obtained a copy of your personal credit report. Your credit report pretty  much reports everything that lenders may be interested in knowing. Some information that your credit report does not contain is information about your race, origin, religion, personal lifestyle, political affiliation, medical history, or other information unrelated to your credit history and ability to repay credit debt.

Review your entire credit report. Most financial advisers would recommend that you obtain a copy of the free credit report that you are entitled to once a year and review it carefully. If you have been rejected or turned down for credit, housing or employment due to your credit report, you may be entitled to a free copy of your credit report as well. There are three main credit bureaus that are available to you: Equifax, Experian, and TransUnion. All other credit companies obtain their information from one of these three. Since the information in your credit report may differ somewhat from one bureau to another, it is wise that you obtain a copy of your report from each of the three major bureaus once a year. If you cannot afford all three credit bureaus, then consider ordering your report from Equifax since it is the largest reporting bureau. Upon receiving your credit report, if you find an error in the report you can call or write to the credit bureau explaining the error in detail in 100 words or less. You want to provide any documents that may help prove your statements.  Your payment history will stick around for a long time. Chapter 7 bankruptcies will stay on your credit report for ten years from the filing date and Chapter 13 bankruptcies will remain on the report for seven years from the date fully paid or ten years if not paid as agreed. Unpaid tax liens may stay on your credit report as long as fifteen years.

So how do Lenders use the Credit Report?

Lenders typically use the information in your credit report to evaluate your personal character, your total debt capacity and your collateral or capital. Their study of your character is also based on the stability of your employment and residency history. They will check to see how often you have changed jobs, how often you moved and the length of time you stayed at each address. These kind of information gives the lenders a feel for your personal stability and an overall general assessment of your character. To evaluate your debt capacity, they will look into your living expenses, open credit account limits, current debts, and other payments to get a feel of how much debt you can afford with your current spending habits and your income. Another huge factor that goes into the lenders decision on lending credit is your credit score. Your credit score is a number or rating which indicates how likely you are to make payments on time and repay loans, based on information in your credit history. This score is computer generated and factors in your current income, education, job stability, how often you have changed addresses, whether you are a home owner, debt to income ratio, and past payment history.

You may obtain your credit score, or FICO score for a fee. All three major credit bureaus offer this option with your credit report or as a separate option. If you find that your credit score is not so great, do your best to improve your credit score by concentrating on paying your bills on time, paying down your credit balances, and avoiding new debt. Improving your credit score is not an over night task, and may take a long time, but is well worth the effort.

Some quick notes on Credit Cards

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Last week I had briefly talked about how you shouldn’t cancel any credit cards before applying for a loan and that brought me to write up a general post on credit cards.

You may already have a credit card, but if you don’t I can almost guarantee you that there will be many opportunities to get one once you step foot on campus. There are many credit companies who set up tables on college campuses to encourage students to sign up for their credit cards. They even offer neat gifts like T-shirts, water bottles, key chains, pens, mugs, etc. in exchange for having you fill out an application. It all sure sound easy and tempting but you want to think twice before you do it.

Just like loans, credit cards can help you build a positive credit report. Having a nice credit history can help you in many ways like receiving private loans, buying a car, renting an apartment, even helping you get a job. There are tons of advantages of having a credit card but in return, it can also affect you negatively if you misuse it.

Like most things, there are advantages and disadvantages to credit cards. Knowing some of these can help you decide if you do or do not want to use credit cards.

Here are some advantages for credit cards.

  • Credit cards are becoming more and more widely used
  • Great way to keep track of your expenses
  • Helps in times of emergencies
  • Reduces the need to carry cash or checks
  • Helps build responsibility and independence
  • Helps to improve credit score
  • Credit card offers rewards
  • Protection of purchase
  • and obviously, its very convenient

Onto the Disadvantages…

  • Easy use = easily in debt
  • Credit cards not paid on time can have negative effect on credit score
  • Credit cards can be confusing and stressful
  • Have complicated terms and conditions
  • Allows you to build up more debt than you can handle
  • Can have high interest rates and fees

Credit cards can make life a lot easier and be a great tool, but if they aren’t used wisely they can become a huge financial burden. We live in a society of “I want” culture and a “I want it now” one at that. Credit cards is definitely something that will always be growing more and more in demand and only when we start to learn how to manage our finances and how to save money will we ever get rid of the burden that associates with debt.

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Credit Card Tip:Don’t Cancel Any Credit Cards Before Applying for a Loan

creditcardcut.jpgThe last thing you want to do is to cancel your credit card(s) right before applying for any types of loans, this is a bad idea. Canceling your card can affects your credit score negatively. When you have a lower credit score, that will result in higher interest rates and also may increase your fees. It doesn’t hurt for the account to stay open but it can hurt if you close it.

Instead of closing your account just leave it open, it doesn’t hurt. If you’re never going to use that credit card again, pay off the credit card or transfer your balance to a card with a lower interest rate and cut it up. You can cancel the credit card once you’ve decided that you’re not going to be needing a loan anytime soon.

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Credit Card Completely Paid off!

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Yes, I’m really excited to announce that I have completely paid off my credit card as of this past weekend. I have wrote many posts about my credit card situation and it has been an ultimate goal for a while now. I am finally glad to announce that my long journey has finally reached an end.

For those who do not know, I originally had a credit card debt of about $9,000.00 as of last year May. Over this past year I have been trying really hard to fight temptation to not buy anything that I don’t need and only worrying about paying off this debt.

So now that it’s finally paid off, what’s my next goal? What am I now going to do since my debt has finally been paid off? It’s simple. Save, save and save. Invest, invest, and invest. That is going to be my next goal. Over this past year, paying off my debt has definitely been a great learning experience and through the process I’ve learned to budget effectively and to live frugally.

Now my main goal is to save up for my down payment for my first home. I plan on purchasing my first home in about 3-4 years from now, so I have plenty of time to start saving. I live in Maryland and houses here are quite expensive. If I want to save for a 20% down payment, I’m going to need about $70,000. That’s going to be my next 4 year goal.

Having this credit card debt paid off has relieved a lot of stress off my back and now I’m ready to continue my financial journey.

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