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The 8 Very Worst Mistakes You Can Make With Credit Cards

Video thumbnail for youtube video 6 Tips For Simplifying Your Financial LifeYou could love or hate your credit cards but, of course, they’re just little pieces of plastic with your name and a number on the front and a magnetic strip on the back. Whether you love or hate your credit cards you know it really isn’t the cards. It’s you and how you use them. Credit cards can be real friends when you use them correctly. For example, they offer instant gratification – for better or for worse. There you are browsing through one of your favorite stores and you spot a smart TV for just $499. Unfortunately there’s only $30 in your wallet. But, hey, you don’t have to save money for three months to buy that TV. Just whip out that little piece of plastic and you’ll walk out of the store with it under your arm.

Convenience and security

Credit cards also offer both convenience and security. It’s just much more convenient to carry one or two credit cards than a big wad of cash. If your card is stolen or if you suffer identity theft most credit card issuers limit your liability to just $50 and many cases will even waive that. And of course there are those juicy rewards programs offered by many credit cards. Depending on the card you could earn cash back, points redeemable for travel and other goods and services every time you buy something. If you use your cards regularly and pay your balances in full every month, you can actually come out ahead. Use those cards correctly and you could be flying home free for a weekend with friends.

 On the downside

Unfortunately, those little pieces of plastic can turn into little devils if not used correctly. There are some very bad mistakes that can be made with credit cards and here are eight of the worst.

1. Having too many credit cards

There is a simple equation at work here. The more credit cards you have the more likely you are to use them, which means the more likely it is that you will get into debt. In addition, when you have many credit cards this can negatively impact your credit score, which will reduce your ability to borrow money. Ideally, you should probably have only one credit card because this makes it easier to track your spending and to make your payments on time. There is a case to be made that having three to five credit cards won’t be a problem but if you find your balances are increasing, it’s a danger sign and you need to definitely not get another card

2. Misunderstanding the introductory rate

One smart thing to do if you have high interest credit cards is to transfer their balances to one of the 0% interest balance transfer cards. But when you do this don’t mistake the introductory interest rate for the permanent rate. Those cards make a big thing about the number of months where you won’t be required to pay any interest at all but they tend to put their permanent interest rates in very small type. If you don’t pay off your balance before your introductory period expires you could end up paying 19% to 20% on it.

 3. Failing to read the fine print

If you do make a balance transfer it’s important to read the fine print. It could include two-tier balance transfer fees as well as some limitations. In most cases, your introductory rate will apply only to balance transfer amounts or to purchases for a certain period of time. There could even be a security interest clause that would allow the card issuer to repossess items you bought with its credit card if you fall behind on your payments.

 4. Not shopping for the best interest rate

One of the biggest mistakes people make is to not do what’s called rate shopping. Before you sign up for a new card look for the best possible APR or interest rate. When you get unsolicited credit card offers make sure you note the rate. This is because if you’re having financial problems you probably won’t get the best rates or terms. Always comparison shop for a credit card

 5. Making only the minimum payments

If you make only the minimum payments on a credit card where you have a high balance, you could be repaying the money over several lifetimes. Here’s an example of what this can mean. Let’s suppose you owe $5,000 at 15% and make just the minimum payment of $100. In this case it would take you 79 months to pay off the debt or about 6 1/2 years. Just imagine how long it would take to pay off $10,000 or more.

6. Paying no attention to your monthly statement

When you pay attention to your monthly statements you will know your due dates. This will also allow you to make sure that all of the charges are legitimate. You’ve probably heard of the big data breaches that have occurred recently. These are bound to turn into identity theft and you could be a victim. If you ignore your monthly statements there is no way for you to know that your identity has been stolen. In addition, one of the worst things you can do is be late in making a payment as this can have a very bad effect on your credit score. If you won’t be able to make a payment on time, call the credit card issuer explain what happened and ask it to waive the late fee. Most credit card issuers will be happy to work with you if you just ask for help.

 7. Exceeding the credit limit

When you review your credit card statements every month you’ll also keep from exceeding your credit limit. While the CARD Act stopped the policy of automatically enrolling customers in over-limit programs with high fees, it can still be very embarrassing to stand at checkout and find that your card has been rejected. If you review a statement and find that you’re getting close to your credit limit try hard to pay down your balance before using the card again. And when you go over the limit, you will be charged an over-the-limit fee.

8. Using credit cards to buy things you don’t needwoman looking at a lot of bills

Probably the worst mistake you can make with credit cards is using them to buy things you don’t need. One good exercise is to sit down at the end of the month, go over your credit card statements and look for things you purchased that you don’t really need. There’s a simple fact that we all spend more using credit cards than cash. When you review your statements you might be really surprised at the number of items you bought you could have done without. We all fall victim to making purchases that at the time we think are needs but are just really impulse buys. If you are about to make a really significant purchase like a smart TV or a new refrigerator, wait 48 hours. If you still think you want the item wait another 48 hours. If after that you still believe you need the item then go buy it.

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3 Ways You Can Pay Your Credit Card Debt

man with tied hands holding a credit cardCredit card debt is something that, unfortunately, most people have. Regardless if it is just a few months to holding a balance for years on end, card payments is as common as sunshine is in the morning. But as people get into debt with their cards and realize that it is one surefire way to cost them a good credit history, they start looking for ways to pay their card balances.

Of course, paying off their credit card balances is easier said than done. Consumers soon find sweat forming on their foreheads trying to figure out their next steps. They fear that they are way in over their head and unsure of their next steps.  At this point, a lot of people just to decide to forget about it and go on hoping against hope that the lender just mysteriously erases all their credit card debt.

Bankrate.com explains that years after the Great Recession, people can’t seem to dig themselves out of credit card hole they are in. It estimates that about a quarter of American consumers have bigger balances on their credit card compared with their emergency fund. This means that people have more debt than funds that’s supposedly used to bail them out of tight financial situations including debt payments.

This further complicates the situation because as people nurse the balances over a long period of time, they are actually throwing away money in interest payments for the credit card debt. The longer the payments are in installment, the  deeper the burn it creates on the household budget and the future financial savings of consumers.

3 options to pay down your credit card balance

If you are staring down debt and looking for ways to tackle credit card payment more aggressively, you are not alone. It is one thing to be in debt but it is another thing  to get stuck in the debt cycle for a very long time. This is not far from happening with all its interest rate, penalties, fees and surcharges eating up on your hard earned money. Here are some ways to pay effectively pay down credit card debt.

Increasing the payment schedule. The most common payment arrangement for credit card balances is once a month. But if you want to aggessively pay down debt, you may want to increase your contributions to twice a month. It will not only decrease your principal balance faster, it will also minimize the interest amount that will accrue on your debt each month. It may be possible for you to make smaller payments each time but make sure, the amount is no less than your minimum payment requirement. If you have a huge debt cutting the payments to smaller pieces might make it easier to handle and budget.

Use the snowball method. Huffingtonpost.com explains this method as aggressively paying down the smallest credit card balance while keeping minimum payments on all the rest. Popularized by finance guru Dave Ramsey, this payment method is more of a morale booster compared with other payment strategies. Reason being is that being able to pay off one debt can give you two things – the confidence to tackle the next one and extra funds to allocate over to the next target. It gives you small wins every time that methodically builds up to prepare you for the big credit card debt payments.

Use the avalanche method. To make it simple to understand, this is the opposite of snowball method. If the snowball method encourages you to tackle the smaller balances first, the avalanche will tell you to pay off the debt with the highest interest rate first. As you pay all your accounts with the minimum payment requirement, the debt with the highest interest will be paid much more. This is actually more practical if you want to save more money. That is because you are also attacking the interest amount that you will pay off throughout the duration of the credit card debt. If the snowball method is for the emotional people, this is for the more logical ones. Those who will opt for the avalanche are concerned about the savings that they will get in the long run over the satisfaction of an early debt payment completion.

All three of these options will help you make better progress in reducing your credit card debt.

How to save on credit card fees and interest rate to lower your balance

Apart from the repayment plan that you will choose, you also have to think about how you can minimize the interest and the fees that are consistently added to your account. Especially after the news from Bloomberg.com, you may want to think about how you can minimize the interest rate on your debt.

According to the article, American Express Co. is planning to raise their interest rate – specifically those on credit cards. This decision came after the company had a big setback caused by an antitrust lawsuit. This information was already cascaded down to the million customers of the said company. The annual rate will climb by up to 2.5%.

In case your major credit card debt is under American Express, then this is one big problem for you. Here are some tips that you may benefit from to reduce the impact of this news on your finances.

  • Do not use your card while paying off the balance. If you keep on using your card while you are in the midst of a repayment plan, it will take you longer to finish paying off all your debts. This is why you should stock your cards for the moment – at least, until you have significantly reduced your debts. Better yet, do not use your card until you have zero balance. Remember that the interest amount that accrues on your balance will depend on the amount that is being carried over the next billing cycle.
  • Never pay lower than the minimum. Paying below the minimum will not only keep your balance high, it will also trigger late penalty fees. If you cannot meet the minimum payment requirement, that will be considered not paying off your monthly obligation. It will cause you to pay the late penalty fee and it will increase your balance. Some companies will even change your interest rate and make it higher because of it. This should be enough reason to encourage you to prevent late credit card payments.
  • Increase your payments. Lastly, you may want to increase your payments each month. This is one of the ways that you can really be aggressive in your efforts to pay off the debt – most especially in minimizing the interest amount that will accrue. Cut back on your monthly expenses by downsizing your lifestyle. Make a lot of sacrifices to increase your extra income so you can pay more towards your card balance.

If you follow these tips, you should be able to keep the interest rate and penalty fees from adding more problems into your credit card debt. You can concentrate your financial resources on paying off everything that you owe. And once you have successfully paid off your balance, make sure that you keep it from piling up again. You should learn your lesson and implement the best practices when it comes to using credit card for your purchases.

Credit Cards’ Nine Biggest Problems And What To Do About Them

woman holding a credit cardWhy are credit cards like automobiles? It’s because they can both be very helpful if used sensibly. An automobile can get you from one place to another quickly and effortlessly so long as you drive prudently. If you don’t you could end up in a serious accident or even in jail. Credit cards are also very convenient but they do come with potential problems just as do automobiles. The old adage forewarned is forearmed is definitely true of credit cards. So here are the nine biggest problems you could have with your credit card and how to handle them.

#1. Your card has a high interest rate

Just do the math and you will see why it’s a problem if your credit card has a high interest rate. The simple fact is that this card will cost you more than one with a lower interest rate. There’s just no reason to have a card with a high interest rate if you have a really good credit score. This is especially true if you’re getting offers from other credit card issuers. If you have good credit and your interest rate is 19% or higher call your credit card company and ask it to lower your interest rate. If it refuses think seriously about transferring the balance on that card to one with a lower interest rate or even a 0% interest balance transfer card.

#2: You find an error or unauthorized charge on your billing statement

It’s practically impossible to turn on the TV these days without hearing about another data breach. The most recent big breach was Anthem Blue Cross/Blue Shield, which was hacked putting its millions of members at risk. You need to carefully review your billing statement every month. While you are not responsible for paying one of these charges or billing errors you need to dispute the problem in writing within 60 days of when the statement was mailed to you. It’s really important to report any errors quickly. You can resolve many problems just by calling the credit card issuer but when you write a letter, it ensures your rights will be protected.

#3: A merchant declined your credit card

It can be embarrassing when a merchant declines your credit card. There can be several reasons for this. You could be over your credit limit or your card has expired. Or maybe it’s been canceled. The important thing is to always carry a backup funding source so you can pay for your transaction in the event your credit card is declined. If this happens, there is a phone number on the back of your credit card that you should call to learn why your card was declined. It might be something that could be cleared up very quickly.

woman looking tired and stressed#4: You forgot to make a payment

One of the biggest problems with credit cards is that it’s easy to forget to make a payment. This can be especially true if you’re going through a major change in life. Your credit won’t be damaged severely if you realize that you did miss that payment before your next due date. It’s possible you could even get your credit card company to waive that late fee – if you haven’t been habitually late. Also, you can prevent any damage to your credit score by making up that payment before it gets 30 days past due. If you have a calendar on your computer or smart phone you should put your due date on it as a recurring event – to help make sure you don’t miss any payments in the future.

#5. The due date on your card doesn’t align with your payday

When your credit card due date doesn’t align with your payday you can find yourself constantly juggling bills to make your payment on time. If this is your problem call your credit card issuer and ask it to change your due date. Keep in mind that your due dates will fall on the same day every month.

#6. You let a relative or friend use your card and he or she isn’t paying

It’s never a good idea to let someone else use your credit card but if you did and that someone isn’t paying, you’re still responsible for the charges – assuming you gave that friend or relative permission to use your card. If a person used that card without your permission you’d have to sue him or her to eliminate your liability and clear your name. You could take that person to small claims court to get back what you are required to pay on his or her behalf. If you don’t want to do this for some reason, you’ll have learned the hard way not to trust someone else with your credit card.

#7. Your credit card will no longer swipe

If you accidentally leave your credit card around some kind of a magnet for a long period of time, it can become de-magnetized. This means the information is erased from that magnetic strip on the back of your credit card and card readers can no longer process your transaction. Some cashiers will process the transaction manually. But ultimately you’ll have to call the credit card company and ask to have a new card sent to you.

#8. You can no longer afford your payments

If you charge up too much on a credit card and discover that you can no longer make the payments the worst thing you can do is to stop making them. If you do this, your account could be sent to a collection agency. What’s better is to first try to trim down your expenses so that you’ll have more room to make your credit card payments. This could mean sacrificing some luxuries for a few months until you get your balance reduced. You could also contact the credit card company and ask it to lower your interest rate or minimum payment. If none of this works you may want to get help from a credit- counseling agency. When you do this, you’ll be assigned a debt counselor who will review your debts and your earnings and help you create a budget that could make it possible for you to make those payments.

#9. The credit card company has made an error on your credit report

Credit card companies can make mistakes just like everyone. If you find inaccurate information on a credit report you can dispute it. All three of the credit bureaus have forms on their websites specifically for this purpose. However, most experts say it’s better to dispute the item in writing. When you do this, the credit bureau will contact the credit card issuer that provided the information you’re disputing and ask that it be verified. If it can’t verify the information or fails to respond within 30 days, the credit bureau is supposed to remove the item from your credit report. If this doesn’t work, you can dispute the item directly with your credit card company. If all this fails, you could complain to the Consumer Financial Protection Bureau. If you can prove that the information on your credit report is inaccurate and the credit bureau contains to report it you could sue the credit bureau.

8 Important Tips To Prevent Identity Theft

Man in ski maskIdentity theft has become just about as common as sunshine. It’s almost impossible to pick up a newspaper or watch a news broadcast without learning about another theft. The most recent was the insurance company Anthem where hackers gained access to the company’s computer system and got the personal information of their current and former members such as their names, birthdays, street addresses, email addresses, medical IDs/social security numbers, and employment information, including even income data.

If you are or were a member of Anthem this is a reason to be very concerning. There’s no telling what those hackers will do with the information they were able to obtain but you know it won’t be anything good. If it turns out that the attackers decide to use your identity this could mess up your financial life for many years to come. For that matter the same thing would be true if you weren’t a member of Anthem but had your identity stolen.

You can prevent your identity from being stolen or at least minimize the chances it will happen by following these tips.

#1: Request a 90-day credit alert

You can contact each of the three credit reporting bureaus – Experian, Equifax and TransUnion — and ask them for a 90-day credit alert. While each of these agencies is supposed to notify the other two, it’s probably better for you to contact all three yourself just to be on the safe side.

#2: Get your free credit reports

The law requires the credit bureaus to provide you with your credit reports free once a year. You could get each individually or all three together on the website www.annualcreditreport.com. Most experts feel it’s better to get your reports one at a time at four-month intervals. That way you’re basically monitoring your credit year round and at no cost.

When you get one of your credit reports be sure to review it very carefully. Doctors can make mistakes and so can credit bureaus. If you do find an error you will need to dispute it. The three credit bureaus have pages on their sites for this purpose. However, the experts say it’s much better to write a letter to the credit bureau disputing the item. When it receives your letter it is required to contact the company that provided the information and ask it to verify it. If the company cannot verify the information or fails to respond within 30 days the credit bureau must remove it from your credit file.

If you’d like to know how to write a letter disputing something on one of your credit reports, here’s a helpful video courtesy of National Debt Relief …

#3: Watch your credit card statements like a hawk

We know that when a credit card statement arrives in the mail the simplest thing is to just pay it and move on. However, you really need to review it very carefully looking for discrepancies or charges you don’t remember having made. What identity thieves often will do is add a bogus charge of less than a dollar to see what happens. If you find a charge such as that or a big charge you don’t remember having made, immediately contact the credit card company. Most credit cards limit your financial liability to $50 and some cases won’t require you to pay anything. But it’s critical that you report any suspicious activity immediately so that the credit card company can protect you from further damage.

#4: Keep copies of everything

If your identity has been stolen or you have any disputes with a credit bureau be sure to keep copies of all correspondence and all reports. It’s a good idea to use certified mail so that you will get delivery receipts and can prove that you actually sent the letter or letters. When you make a phone call, keep notes as to what was said and what you and the credit bureau or credit card issuer agreed to.

#5: Sign up for credit monitoring … if it’s free

The experts say that it’s probably not worth the money to pay for credit monitoring, especially since you can basically do it yourself (see #2). However, when a company has been hacked it may offer its customers free credit monitoring. If so, sign up for it, as it can’t hurt. The monitoring service can tell you if a new account has been opened in your name but can’t prevent this from happening and many of them fail to check for things such as fraudulent applications for government benefits, bogus cell phone accounts or claims for medical benefits. Some do have a trained staff that will work with you and your credit card companies and some offer a limited amount of insurance.

#6: After a data breach

If you belong to Anthem or some other company where there has been a data breach these scammers might try to use your data to trick you into giving them more of your personal information. They will then use this information to open a new credit card or steal money from one of your accounts. If you get an email asking for information and with links don’t click on them. And if you receive a letter saying that you should call a certain phone number, don’t do this. It’s a ploy.

#7: Consider asking for a full freeze

You can always ask the credit bureaus to put a freeze or fraud alert on your credit files. A freeze will keep anyone from checking your credit in order to open a new account, which is how identity thieves often operate. This will give you very good protection against ID theft but you need to weigh this against the bother of having to notify the credit bureaus to lift the freeze, which can be very time-consuming. Alternately, you could ask the bureaus to put a fraud alert on your accounts. Lenders could then access your credit reports only if they first verify your identity.

#8: Don’t respond

If you receive a call asking for any kind of personal information, just hang up. If you receive emails requesting that kind of information delete them. Reputable companies do not request personal information from you either via phone or email. If you receive any of these requests you can just about bet it’s coming from a scammer.

A sad fact

It’s a sad fact that we all live in an era where much of our information such as our names, addresses, phone numbers, places of employment and Social Security numbers are all out there somewhere in electronic form, which means this information can be stolen by identity thieves. This puts the burden on you to monitor your credit and keep an eye on your credit card statements. However, it’s a burden you need to accept – as it’s much better to be safe than sorry.

Charge Cards And Credit Cards

woman thinkingYou might think that credit cards are the only way to make purchases using plastic. but you’d be wrong. When it comes to those little pieces of plastic, there are credit cards and charge cards. Both offer certain features but if your goal is to increase your credit score without adding on more debt, a charge card might be your best option.

The similarities

There are a number of similarities between charge cards and credit cards. They both represent a line of unsecured credit provived to you by the company that issued the card. Both mean that you’re essentially being given a short-term loan whenever you use the card and it’s expected that by the end of the month you will repay this loan.

Both charge cards and credit cards are fairly comparable when it comes to offering rewards. You could be getting cash back, points or miles every time you spend a dollar. Which one of these you’d get earn will depend on the card you choose.

Both credit cards and charge cards have very similar fees. This could be an annual fee, a late fee or a fee for a foreign transaction – again depending on the card you choose.

The differences

While charge cards and credit cards can be very similar, they are also very different in some respects. As an example of this, credit cards typically have a limit on how much you can spend. The amount will depend on which type of card you choose and your personal finances. It’s possible that your credit line could be increased over time but other than that it will remain the same as long as you have the card.

In contrast, there is no predetermined credit limit on charge card. The company that issued the card might set some limits on as to how you use it but this is this not set at the time of approval. If you charge a lot this could be a good thing as it means extra flexibility.

Here comes the most important difference. With a credit card you can pay just the minimm and roll the rest of your balance over to the next month. With a charge card you are required to your full balance every month or be charged a fee. The good news is that this means you’ll never have have a balance on which you’ll be charged interest. A credit card provides more flexibility because you’re only required to pay the minimum to avoid problems with the credit card issuer. This means if you have a month where your a little short on money you could pay the minimum payment required and then pay off your remaining balance the next month – of course with interest.

Your credit score and a charge card

Using a charge card will have a different effect on your credit score then when you use a credit card. The reason for this is that 30% of your score is based on your debt-to-credit ratio. This is the total amount you’ve charged on your cards as compared with your overall credit limit. For example, if you have an overall limit of $5000 and have charged $1000, your debt-to-credit ratio would be 20%. Your credit score could take a hit if this ratio creeps above 30% and especially above 40%.
If you don’t know a lot about credit scores, watch this brief video courtey of National Debt Relief.

Not nearly as much of an impact

As you have read charge cards don’t have a conventional credit limit. As a result FICO, the company whose credit scores are most widely used by lenders, looks at them differently. In fact, in terms of the debt-to-credit ratio, charge cards are totally excluded from your credit utilization. This means the amount you put on a charge card won’t have nearly as severe impact on your FIC) score as the same amount put on a credit card. If you were the type of person that runs up a high balance every month, this would be very convenient. You wouldn’t have to worry constantly that a high balance would damage your credit.

You would build a good credit history

Your FICO score will be affected in other ways by a charge card. A full 35% of your credit score is based on your payment history and length of credit. If you were to get a charge card as soon as you can and then make your payments on time every month, this will help you build a solid credit history and a higher credit score. Of course, if you pay off all your credit cards every month this will have the same beneficial effect. But you would still have to watch your debt-to-credit ratio.

Using those credit cards sensibly

If the idea of having to pay off your balance every month doesn’t appeal to you then a credit card would be a better choice. However, if you want to keep from getting in trouble with a credit card you need to use it sensibly. This means making your payments on time.
Every time you’re late making a payment or miss a payment you will not only accrue late fees and additional finance charges but these will show up on your credit report and can significantly reduce your credit score.

Don’t pay just the minimum

Using a credit card sensibly means paying more than the minimum. When you pay just the minimum each month your balance will grow even if you don’t put any new charges on the card and you will end up much more interest. For instance, if you have a credit card with a balance of $5000 at 19% and a $130 minimum payment it would take you until 2020 to pay off the debt and would cost you a total of $7771 including interest. But if you were to pay $200 a month you would have the debt paid off in two years and nine months at a total of $6415.

Read your agreement carefully

To use a credit card sensibly also means carefully reading your agreement and any other materials the credit card issuer sends you. The agreement you sign will spell out things such as your interest rate, when your payments are due and what will happen if you’re late or miss a payment. Your credit card issuers will also send you “changes in terms” notices around 45 days before they actually make changes to your fees, interest rate or other important things about the card. If you read your agreement and those notices very carefully it help you determine whether or not you want to change your spending habits.

Review your monthly statements.

Mistakes can happen and your identity could be stolen. It is important to carefully review your monthly statement as soon as they arrive. Call your credit card company right away if you spot an error. One of the best things about credit cards is that if your identity is stolen they generally cap your liability of $50. And in some cases they won’t even require you to pay that.

Don’t exceed your credit limit

Remember how we said that credit cards have credit limits. If you did read your agreement carefully you will know what your credit limit is and it’s wise to stay below it. If your balance grows to 70% to 75% of your credit limit, this will be a daner sign on your credit report and could damage your score. If you believe there is some reason why you would need to exceed your credit limit, opt in for overdraft protection. If you don’t do this and a charge would take you over your limit, it could be turned down. Plus, you may be hit with one fee per billing cycle.

Store Credit Cards – Great Money Savers Or A Really Bad Idea?

Attractive woman holding small goldern scalesTis the season to be jolly and the season to be pressured by clerks to sign up for store credit cards. There you are at check out ready to pay for your purchase and the bright-eyed clerk asks, “Wouldn’t you like to sign up for our store credit card and earn this wonderful discount? After all, you’re buying the stuff anyway why not save some money?” We’ve seen discounts as deep as 25%, which could be a substantial savings if you’re buying $200 worth of kids’ toys. Or even better if you’re buying a $500 tablet.

Before you sign on the dotted line

As tempting as that discount might be here’s something to consider. One recent survey found that nearly half – 49% – of those that had signed up for a store credit card ended up wishing they hadn’t. Given this statistic it’s clear that you should think the matter through very carefully before you sign on the dotted line. And you should never feel unduly pressured to get that store credit card. If you see that one of your favorite stores is offering a great discount when you sign up for its card then think this through carefully while you’re outside the store and not when you’re at checkout. Don’t get us wrong. Signing up for a store credit card can actually be a very good decision. Or it can be a terrible one. What’s the difference? It will depend on how you pay your bills and your current financial situation.

Understand what you’re signing up for

If you sign up too hastily without understanding the card’s terms and conditions you could end up doing yourself a world of hurt. Store credit cards have seriously high interest rates or almost as high as the interest rates paid by subprime borrowers. Another survey done recently found that America’s largest retailers had an average APR of 23%. And this is about eight percentage points higher than the national average for all credit cards. What this means is that if you fail to pay off that purchase in a couple of months you’ll have basically given back the discount your earned by signing up for the card in the first place. As an example of this let’s suppose you put $1000 on that brand-new store card. If you pay just the minimum balance it would end up costing you $840 in interest and take you more than six years to pay off the balance. In fact, the retailer can actually make more money off the interest than in selling you the merchandise. Know this and you will understand why they are so eager to give you that discount when you sign up for their store card.

More stuff to consider

Do you pay off your credit card balances in full every month? If so and you’re not about to buy a car or take out a mortgage soon and you could save a lot of money by signing up for that store card, then maybe you should do it. In addition, getting a store card and using it to establish credit can be a good thing because our retailers are often more lenient about whom they let have their store cards than if you were to try for a Visa, MasterCard or Discover card. In fact, if you have a low credit score you have a much better chance of landing a store credit than one of those “universal” cards. If you keep your balance low and pay off your bill at the end of every month you’ll be well on your way to a better credit history.

Don’t get a bunch

No matter how much money you could save by signing up for a bunch of credit cards just in time for your Christmas shopping it’s like the old, “Just say no.” Why is this? Because it could seriously damage your credit score. And keep in mind that if you want to get a store card that’s co-branded with American Express, Visa, Discover or MasterCard, you’ll still need to have very good credit.

What if you don’t have good credit?

If you don’t have good credit than, as noted above, a store credit card could be a good choice but only if you use it sensibly and pay off either the entire or most of the balance at the end of every month. Beyond this, you should get to work improving your credit worthiness. Unfortunately, there’s very little that can be done about this short-term. A full 35% of your credit score is based on your credit history and there is nothing you can do about this. It is what it was. But 30% of your credit score is your credit usage and this is an area where you could do some good. Credit usage is quite simply how much credit you’ve used versus how much you have available. This is usually expressed as your debt-to-credit ratio. Let’s say you have $10,000 in total credit available and have used $5000 of it. Your debt-to-credit ratio would be 50%, which could have a negative impact on your score. If you could pay down some of that debt or get your credit limits increased so your ratio drops down to less than 30% this could cause a nice uptick in your credit score.

The other three components

The three other components of your credit score are length of credit history, new credit and types of credit used. Once again there’s not much you can do about your length of credit history but you could influence the types of credit used by getting a new auto loan, a personal loan or even a home mortgage. What new credit really means is the number of times you’ve applied for new credit. This gets back to the point made earlier about not applying for too many credit cards during this holiday season.

woman with laptop and credit cardBeyond this you will just need to make sure that you pay off each credit card at the end of the month if it all possible. One trick that’s helped many people is setting up alarms on their computers or smart phones to remind them when their payments are due. Other people have had success by taking all of their bills when they come in at the first of the month and then sorting them into two categories – those that need to be paid at the first of the month and those that need to be paid in the middle of the month. They then organize them in such a way that they pay about the same amount at the first of the month and at the 15th. If you have bills with due dates that don’t fit this scheme then contact your creditors’ customer service departments and you should be able to negotiate a change in due dates. Be sure to mark the bill paying days on your computer or smart phone – the first and the 15th. When the time rolls around reserve an hour or so to review your bills and get them paid. Finally, whenever possible, sign up for online bill pay as this will not only save you a stamp it could end up saving your credit score.

Finally, here are some more good tips for bill paying courtesy of National Debt Relief …

Everything You Need To Know To Deal With Nasty Debt Collectors

stressed old manWhat’s worse then being seriously in debt?

It’s being seriously in debt and having to deal with debt collectors.

The problem is that these people usually work on a commission basis and have a quota. If they want to get paid and keep their jobs they must collect money from you –by hook or by crook, which is an old English phrase that means by any means necessary. And trust us. Debt collectors will use any means necessary up to and including threatening to go to your employer or your relatives, to take you to court, to have you arrested or to sue you.

“I’m mad as hell”

If you’re one of the millions of Americans being harassed by debt collectors you may have reached the point where you’re like the character Howard Beale in the movie Network and are saying to yourself, “I’m mad as hell and I’m not going to take this anymore.”

Well, you’re right. You don’t have to take being pressured by debt collectors anymore. You have rights and when you know what they are you can either stop any more phone calls or at least negotiate favorable settlements of your debts.

The first thing to do

First of all, a debt collector has to be able to prove the debt is actually yours. We live in a nation of more than 330 million people, many of whom have the save names and have done business with the same companies. Last I looked there were at least 30 other people just on Facebook with the same name as mine and isn’t John Smith, Bob Jones or Tom Brown.

So the next (or first) time a debt collector calls, make him prove the debt he’s trying to collect is yours. You can ask him for the name and address of the original creditor and the exact amount you owe. If the collector is unable to provide this information, he has five days to send you a written notice with the information you’ve requested. You could also dispute the debt by writing a letter to the collection agency asking that it verify the debt. This could mean requesting a copy of the statement showing your balance, a copy of the original credit agreement or any other information you deem pertinent. Once the collection agency receives your letter it has 30 days to respond during which time it is not allowed to contact you.

If the debt is really yours

If the debt collector is able to prove the debt is yours, you have a couple of choices. First, you could try to settle it for less than you owe. One thing the debt collection agency doesn’t want you to know is what it paid for the debt. In most cases the original creditor (think bank or credit card issuer) bundled up a bunch of debts it had written off and sold them to the collection agency for pennies on the dollar. If your original debt was for $500, the collection agency mighjt have paid five dollars or even less for it. This means there is room to negotiate. You could offer to settle the debt for, say, $50. The collector can then either accept your offer or make a counter offer. In either event the odds are that you’ll be able to settle the debt for much less than its face amount.

Make the collector stop calling youDebt collector hollering into mic

A second alternative is to make the collector stop calling you and then just wait to see what happens. Yes, you read that right. You can make the collector stop calling you. In fact, all you need to do is write and send his agency a cease and desist letter. You can find samples of this letter by clicking on this link. Be sure to send the letter certified and return receipt requested so that you can prove the collection agency actually received it.

If the collection agency does indicate that it received your letter (which it may not do) it can contact you just one more time to either acknowledge it won’t be contacting you again or to inform you what legal action it will take next such as suing you.

If you’re lucky

Once the collection agency has stopped contacting you, start holding your breath to see what it does next. If you’re lucky it will simply go away and you won’t hear from it again. If it’s a big debt you may not be so fortunate. The agency might sue you or sell your debt to yet another collection agency, which would then start harassing you.

Get an attorney

A third alternative is to hire an attorney to represent you. Of coarse, you wouldn’t want to do this unless it was a very large debt as you will have to pay the attorney somewhere between $100 and $500 an hour for his or her services. But once the debt collector knows you are being represented by an attorney, he will generally stop calling you and will contact your attorney instead. This means the debt collector must know your attorney’s name and contact information. If you do have an attorney and receive a call from a debt collector make sure you tell him that that you are being represented by an attorney and that he should start contacting him or her and not you.

Understand your rights

Assuming a worst-case scenario – that the collection agency continues to harass you over the debt – it’s important to know what it can’t do. This is covered in a law passed by Congress several years ago called the Fair Debt Collection Practices Act (FDCPA). It sets out what a debt collector can and can’t do. The most important things it can’t do are …

  • Call you prior to 8:00 AM or beyond 9:00 PM unless you give the collector permission to do so
  • Contact your employer unless your debt is past-due child support
  • Call you where you work if he knows your employer doesn’t want you to be contacted there
  • Send you a postcard or envelope that clearly indicates it had been sent by a debt collector
  • Call your neighbors, friends or relatives about the debt in order to embarrass you into paying it
  • Use an envelope or post card that makes it appear that it came from a court or government agency
  • Call you frequently during a relatively short amount of time as this constitutes harassment and harassment is illegal under the FDCPA.
  • Force you to accept collect calls from the agency
  • Swear or insult you when you’re talking or threaten to ruin your reputation or have you jailed
  • Try to collect more than your debt unless the contract it has with the creditor allows this

What to do if the debt collector violates the FDCPA

If the debt collector does any of the things listed above, you could file a complaint with the Consumer Finances Protection Bureau either online or by calling (855) 411-CFPB (2372). You can report any problems you’re having with a debt collector to your state’s attorney general. You might also be able to sue the debt collector in your state’s or federal court. If you are successful you could win up to $1000, which is not a huge amount but you would also win a lot of self-satisfaction in having beaten the collection agency.

Are You Being Stalked By Zombie Debts?

worried coupleAs a nation we must either love or at least be fascinated by the idea of zombies. As evidence of this two of the most popular programs on television are The Walking Dead and Z Nation. There have also been Shaun Of The Dead, Zombieland, 28 Days Later and Army of Darkness. These are fun films and programs because they allow us to experience horror vicariously without having to risk our own lives. However, there is a form of zombie that can be an actual horror. They are called zombie debts because they aren’t completely dead even if you’ve had a bankruptcy.

How can this be?

Surely this can’t be true. Once you’ve gone through a bankruptcy and had your unsecured debts such as credit card debts and personal loans discharged you should be free of them, right? Well, maybe not. Tens of thousands of us who went through bankruptcy are still being haunted by zombie debts or debts that weren’t killed by bankruptcies – and sometimes as long as a decade after the bankruptcy. This is because some of the country’s largest banks are ignoring bankruptcy court discharges or at least that’s what federal and state officials suspect. Although debts that have been discharged in bankruptcy are supposed to be void, some banks are apparently keeping them alive and eventually forcing people to make payments on debts that they do not legally owe.

Shaking the foundations of bankruptcy

You may not be aware of this but our right to declare bankruptcy is guaranteed in the U.S. Constitution. Our Founding Founders felt that everyone should be able to get a fresh start by having their debts discharged and wrote this into the Constitution. However, there are some banks that are shaking the foundations of bankruptcy by refusing to correct their credit reports to reflect the fact that a debt or debts were discharged through bankruptcy. Where the pressure comes in is that if you know that you can get a clean credit report without paying the debt, you are likely to do so.

Mutually beneficial

The problem is that there can be a mutually beneficial arrangement between banks and debt buyers. When banks receive payment from borrowers they send these along to the debt buyers. This makes these buyers more willing to buy portfolios of soured debts – including those that will wind up voided in bankruptcy.

A heavy toll

A bankruptcy takes a heavy toll on a person. The court will examine every bank account, possession and bill with a fine-tooth comb before they issue the discharge injunction, which is what eliminates certain debts and grants a fresh start. However, all this brain damage is worthless when lenders ignore the fact that your debts have been discharged.

Why this happens

When a borrower has a debt discharged in bankruptcy, the creditor is required to update its credit reports to show that the debt is no longer owed, which theoretically removes any notion of “past due” or “charged off.” However, some banks routinely don’t do this. What the bankruptcy judges suspect is that these are not clerical errors because the banks are refusing to fix the mistakes unless the borrowers pay the “zombie” or discharged debts. And many do end up paying. This is because they have so much at risk as a tainted credit report, which shows they still owe a debt, can cost them a house, a new loan or a job. Other people make payments on these debts they no longer legally owe simply because they don’t understand the practice is illegal. Or they can’t afford to hire a lawyer to litigate the matter.

A shady practice

Debts that have been written off are called stale debts, which can even include those that have been voided through bankruptcy. The motivation for this is that when a bank sells off debts to a debt buyer, it usually can keep any payments it received 18 months or later after the sale. In other words if it’s two or three years after your bankruptcy and the bank refuses to remove the debt unless you pay up it can then keep any payments you make. However, before that it must send any payments it receives to the debt buyer. This is why some banks sell off debts to debt buyers – at deeply discounted prices – that are long overdue and that eventually end up being voided in bankruptcy after the sale.

Debt Scavengers

The companies that buy these debts are generally called debt scavengers as they scavenge for debts. Scavengers often pay less than a cent for every dollar of debt, which means they can make money if they collect only a small fraction of the debt.

Lying salesman or businessmanIn addition to trying to collect debts that have been discharged through a bankruptcy, they also may try to collect debts where the statute of limitations has run or a debt that isn’t really yours. This could be the debt of a person with a name similar to yours, the result of a mistake made by a creditor or even due to identity theft.

What you should do

If you find that you are being haunted by a “zombie debt, the first thing to do is never acknowledge that it’s your debt, which means not saying anything that would even infer that you understand it’s your debt. Second, be sure to watch out for the tricks played by scavenger collection agencies. For example for example, the collector might try a bait and switch credit card where they tack the old debt on to a new card that has offers great benefits.

Third, ask for everything in writing as proof that the debt is really yours. This could be the credit card agreement you originally signed plus your account history. If the collector cannot prove the debt is yours, it doesn’t have the right to take any action against you

Failing this you will need to write a letter to the collection agency where you explain that you are not responsible for the debt, that you don’t knowledge it and you demand that the collection agency stop harassing you or you will take legal action. And make sure you send it Certified and Return Receipt Requested.

Three choices

However, if your credit report is being held hostage because the bank refuses to remove the debt until you pay up you really only have three choices. You can pay off the debt, hire an attorney to litigate the matter or simply ignore the problem and move on. What this really boils down to is that if you can’t afford to hire a lawyer and if you need to have the debt removed from your credit report, you will have to pay off the debt – like it or not.

Think before you file

If you’re facing an insurmountable pile of debts the idea of filing for bankruptcy can be very appealing. Just think. In just a few months you could have all or most of your unsecured debts discharged and be completely debt free. Woo-hoo! But it’s important to think before you act. Not even a bankruptcy can get rid of all debts. For example, it can do nothing about secured debt such as a home loan or auto loan. Unsecured debts like alimony, child support, spousal support and student loan debts also can’t be discharged through chapter 7 bankruptcies. So before you file, sit down and make a list of all your debts and divide them into two columns – those that can be discharged and those that can’t. Add up the two columns and this should give you a good idea as too much help you would get by filing for bankruptcy. And don’t forget that some of those debts could turn into “zombies” and come back to haunt you years from now.

What Debt Will Cost You Over Your Lifetime Will Stagger You

couple going over billsReady for some bad news? Here goes. If you had a child this year, figure on spending $245,340 to raise it. To put this another way, you could either buy a house or have a child. Of course, a house is never going to say I love you or crawl up on your lap for a nice snuggle.

Something else that won’t crawl up on your lap for a nice snuggle is debt. And for many Americans, the cost of their debt will be even more than the cost of raising a child. In fact, debt can cost them as much as $279,000 over the course of their lifetimes.

How can we owe so much?

Like it or not we live in a society that runs on credit. You get a mortgage, run up some credit card bills, sign up for a car loan and before you know it you’re in serious debt. Former Senator Everett Dickson once famously said that, “a billion here, a billion there and pretty soon you’re talking about real money.” You might not be dealing in billions of dollars but to paraphrase the quote, “a thousand here, a thousand there and pretty soon you’re talking about real debt.” The sad fact is that by the end of your life you may have paid banks, credit card companies and other lenders the equivalent of 10 years worth of your paychecks – based on the Social Security Administration’s median net compensation of $28,031 annually. Of course with “median,” remember that 50% make more than this and 50% make less.

It’s easier than you might think

It’s just much easier than you might imagine to run up this kind of debt. Here’s how this can happen …

Your mortgage

For the sake of this example, let’s suppose you have a 30-year fixed rate mortgage at 4.5%. Let’s also assume you never refinance it, which would mean new closing costs and starting all over again. But if you pay off this loan over the course of those 30 years, your interest alone would total just over $226,620.31.

Your automobiles

If you’re typical, you’ll own nine cars over the course of your lifetime – at least according to R. L. Polk & Co. If you don’t think this is true, take me as an example. I try to keep my cars as long as I can, and was absolutely stunned when I added up the number of cars I’ve owned and found I’m already at seven. And my wife has owned almost as many.

Again, for the sake of the example, let’s say each car had an average loan balance of $22,750 at an interest rate of 6.075%, which is the average rate for both new and used cars. Let’s further assume that your loan had a term of 64 months. This would put the interest cost per vehicle at $4372.43. Add this up and you would be looking at total interest over the course of your lifetime of $39,351.87.

Those handy but costly credit cards

Credit cards can be a real help when you use them sensibly. They’re a convenient way to keep from having to carry around a wad of money or to buy a large item when you don’t have the cash in hand to pay for it. I grant that not everyone carries credit cards but if you do, let’s say that you have an average balance of $2171.70 and an average interest rate of 15%. If so, that’s $13,030.20 in interest over a 40-year period.

As you can see this all adds up very quickly and does not even include student loan debts, which is another form of debt that’s carried by 40 million Americans.

If you live in an expensive city such as New York City or San Francisco and have a mortgage the interest on your mortgage alone will probably stagger you. On the other hand, if you live in a lower-cost area such as Omaha or Dallas and you’ve paid off your homes and cars and try to avoid credit card debt, your results may not be as shocking. However, for almost all of us, the cost of our debt will be much more than we realize.

The interest factor

Of course, there’s another important factor besides the amount of your loan that you need to keep in mind when calculating your own lifetime cost of debt. It’s interest rates as they can have a huge impact on the amount you will pay. If you have low interest rate loans, they will cost you less over the course of your lifetime. To get lower interest rates, you’ll need to do some comparison shopping and maintain a high credit score. For example, if you go back to the example given above and have excellent credit you will pay $209,590 in interest while a person with bad credit would pay $369,054. That means a difference of nearly $160,000. That might not be enough to raise a child into adulthood but it should definitely be enough to send one through college.

The credit score factor

If you don’t think your credit score also plays a big part in what your debt will cost you over your lifetime, here’s an example of what it can mean.

lifetime cost of debt calculator

With “good” credit (a FCO score between 680-699), your lifetime cost of debt would be:

Lifetime cost with good credit

But it you had just a fair credit score (between 620 and 679), here’s what your lifetime cost of debt would be:

Lifetime cost of debt with fair credit

So as you can see, as little as a 30-point difference in your credit score could cost you more than $20,000 over the course of your lifetime. And it gets worse if you were to have poor credit as a like amount of debt would cost you nearly $50,000 more than if you had good credit:

Do you know your credit score?

Given the fact that your credit score plays such an important part in how much your debt will cost you over the course of your lifetime, it’s important that you know what it is. There is only one place to get your true FICO score, which is on the website www.myfico.com. You can also get a version of your FICO score from either of the three credit reporting bureaus (Experian, Equifax and TransUnion) or from CreditKarma.com or CreditSesame.com. If you have a Discover Card you’re probably getting your credit score every month as part of your statement. The important thing is to get your credit score. If you learn you have a poor or fair score you have your work cut out for you. While there’s not much you can do about your credit history (how you handled credit in the past) you could at least work on your credit utilization, which is the amount of credit you’ve used vs. your total credit limit. As an example of this if you have a total credit limit of $10,000 and have used $5000 of it, your credit utilization would be 50%, and this would negatively affect your credit score. You could improve your credit utilization by either paying down your debts or getting an increase in your credit limit. While neither of these would be easy to do, it could be worth the effort as it should lead to a better credit score and this would help lower your lifetime cost of debt.

5 Questions To Ask Before You Use Savings To Pay Off Debt

debt and save targetDid you know that your savings can keep your finances from flying apart? In fact, you can use savings to pay off debt. These are only a few of the reasons why this is such an important part of your financial life. In fact, some experts are saying that you cannot be a financial success unless you have some form of savings to your name.

While we are all aware of the importance of savings, sadly, this is a difficult goal for a lot of Americans to reach. According to an article published on Mint.com, the ideal saving rate is 10% to 20% of consumer’s income. However, a report from the Federal Reserve Bank of St. Louis reveal that the current savings rate in the country is actually 4.2% only. That is not even half of what the saving rate should be. The article also mentioned why it is so difficult for consumers to save. It is because they have too much debt.

But if you think about it, that is not the only issue that we have about savings. While it makes sense to get rid of debt first, a lot of people are actually struggling to decide if it is a good idea to use savings to pay off debt. After all, this is already money that you have. Some experts will frown at the idea but if you do the math, you will be losing more if you keep your savings intact and your debt accumulating. Looking at the interest rate alone, debt has a higher rate compared to your savings account. It makes more sense to pay off debt first because you will be saving more in terms of the interest amount that you are paying.

However, that decision is harder to make than you think. Some people need the security of a savings – that is why they opt to keep it intact. But if you find yourself right in the middle of saving or paying off debt, there are a couple of questions that you can ask yourself to help you decide.

Ask yourself these questions before you pay your debts with savings

If you are torn between using your stashed cash to get rid of your debts, there are 5 simple questions that you can ask yourself.

Where will you get the savings from?

There are a lot of savings that you can use to finance your debt payments. According to WashingtonPost.com, debt has a high effect on our retirement savings. In fact, a study done by the Employee Benefit Research Institute revealed that 74.8% of their respondents cashed out their retirement savings after leaving their jobs to pay off debt. Whether you are leaving your job or not, it is never a good idea to use your retirement savings for anything other than your retirement expenses.

Do you have sufficient emergency savings?

Unless you have your emergency fund intact, you should never use savings to pay off debt. This is one of the requirements that you need to have. In case you do not have this yet, you need to save up for sufficient emergency savings. Anything in excess can be used for your debts. This emergency fund can actually help you sustain your debt payments. In case something happens, your reserve fund will allow you to continue paying off what you owe while taking care of that additional unexpected expense.

How much is your debt and the respective interest rate?

In case of multiple debts, list all of them down and take note of each interest rate. In case the interest rate is more than 7%, then you will end up saving more money if you pay off your debts first with your savings. But if you mostly have mortgage or student loans that have less than 7% of your debts, then to use savings to pay off debt is not really that beneficial. The best scenario to finance debt payments through your savings is when you have mostly credit card debt – a debt that can reach up to 36% of interest rate.

Are you expecting any extra money in the near future?

Another question to ask yourself is this: will there be any extra money in your near future? This should be something guaranteed like a commission that is already being processed, a confirmed holiday bonus or your tax refund. If you have this extra money, you can go ahead and use your savings and just replace it with the money that is coming your way.

Is it in line with your financial goals?

The last question that you should ask yourself is whether this move is in line with your financial goals. Smart money management requires you to set goals and that also means your decisions should be aligned with your goals. If you are saving up for a downpayment of a new home, then it might not be a good idea to use your stashed money to lower your debt. But if you need to lower your debt level to have better chances at a low interest home loan, then go ahead and use savings to pay off debt.

Other options to pay back your debts without touching your savings

In case the answer to the 5 questions point you towards not using your savings to pay off your debts, then that is okay. There are other means for you to eliminate debt without touching your savings.

PIOnline.com published a survey that revealed how more than half of Americans set saving goals. But when it comes to retirement, less than half are able to save through their employer’s saving plans. The current survey revealed that the number of Americans saving is basically slipping – that is why you may want to opt not to use savings to pay off debt. Use other options that will allow you to get out of debt while still adding to your savings.

Here are some of your options:

  • Debt Consolidation Loan. This debt relief program involves you borrowing a bigger loan that can help you pay off all or most of your existing debts. What will happen is you will consolidate your old debts under one low interest loan. That should make things easier to pay off.
  • Debt Management. This is also a form of consolidation – but this time, you get the help of a credit counselor. For a maximum fee of $50 a month, you can enjoy their service that includes a careful analysis of your debts and the creation of a Debt Management Plan or DMP. This plan contains your proposed lower monthly payment plan that stretches it over a longer period. That means you get a lower monthly payment requirement.
  • Debt Settlement. In case you are in need of debt reduction, this is a debt solution that can work for you. The whole idea is to convince your creditor or lender that you are in a financial crisis. Then, you will offer them a lump sum money that can pay for a percentage of your debt. You will ask them to accept this lump sum and have the rest of the debt forgiven (at least anything that this big payment cannot cover).

These are only a few of the debt relief programs that you can use to achieve debt freedom. If you do not want to use savings to pay off debt, then make sure you know your other options.

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