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Amazingly Simple Solution To Money Problems – Shred Your Credit Cards

cutting a credit cardCredit card debt has become an increasingly big problem for many Americans. We owe an average of $13,177.75 per household just in credit card debts. But that’s only an average. The fact is that many individuals owe $15,000, $20,000 or even more on their credit cards. Here’s an example of what this amount of debt could mean. If you owe $20,000 at an average of 16% interest, and paid $400 a month on your credit cards it would take you 83 months to pay them off and would cost you $13,177.75 just in interest alone. And that’s assuming you charge exactly nothing on those cards for the whole 83 months (nearly seven years).

We’ve become a nation of credit card junkies

The fact is we’ve become a nation of credit card junkies. As of July of this year, there were 1,895,834,000 credit cards in use here in the U.S. That’s nearly two billion credit cards. And wee have an average of 3.75 credit cards per person. Given these numbers it’s no wonder why many Americans are struggling with their credit card debts.

It’s borrowing from your future

The really destructive thing about using credit cards is that it means borrowing from your future to pay for things today. There’s an old saying that if you want to dance, you’ll have to pay the piper. In the case of credit cards what this means is if you want to buy things today you can’t really afford by using credit cards, you’re basically borrowing money you’ll have to repay some time in the future. And when that some time rolls around, you’ll have less money available to pay for the things you’ll want then.

The nasty power of compounding interest

If you don’t pay off your credit card balances every month, you’ll soon run into the power of compounding interest. If you’re not familiar with this it’s when the interest you owe on a credit card debt is added to your balance so you end up paying interest on the interest. Here’s an example of how this works. Let’s say you have a credit card with an interest rate of 20% monthly on your unpaid balance. If you factor this into an unpaid balance of $1000 at the beginning of the year this will turn into $1200 in debt by year’s end. Multiply this by 20 (an unpaid balance of $20,000) and you will see how much you could be hurt financially by compounding interest.

Shred them but don’t close your accounts

According to a recent study done by the National Foundation for Credit Counseling about 20% or one in five people live without credit cards. This means it obviously can be done. So if you want to get your finances back under control, you need to shred all your credit cards. But don’t close the accounts. You may eventually want new credit in the form of an auto loan or mortgage. When you apply for new credit the first thing your lender will do is check your credit score, which is made up of five components. One of the most important of these is your debt-to-credit ratio as it accounts for 30% of your score. This ratio is calculated by dividing the amount of debt you have by the total amount of credit you have available. For example, if you have $10,000 in available credit and only $2000 in debts, your debt-to-credit ratio would be 20%, which would be excellent. But if you were to close your credit cards your available credit might drop down to something like $2000 and your debt-to-credit ratio would be 100% and that would have a dramatically negative effect on your credit score.

How to live without credit cards

Despite what you might think, it should be fairly easy to live without those credit cards. While you have to basically pay cash for all of your purchases, this could be in the form of a check or debit card. You could also purchase prepaid credit cards or secured credit cards and use them to pay for your purchases.

The differences

Before you trot off to get either a prepaid or secured credit card, you need to know their differences. A prepaid card is just that – you deposit money in advance and then use the card to pay for your purchases until your balance reaches zero. At that point, you can then either add more money to the card or simply throw it away and get another one. A secured card is different in that you make a cash collateral deposit usually $300 or $500 – that gives you a line of credit, which usually will be a percentage of your deposit or possibly the full amount. You then make monthly payments on your balance just as you would with a standard credit card. Also like a standard credit card if you fail to make your payments on time you will be charged a late fee and there will probably also be a fee for any over-the-limit transactions. However, unlike a regular credit card if you exceed your balance or default on your payments you could lose your deposit and your account would likely be closed.

How could you pay cash for all your purchases?

If you’ve been living on a steady diet of credit card usage the idea of shredding your cards and paying cash for everything can be scary. But it shouldn’t be. The secret is to start tracking your spending so that you can develop a budget. There are a number of apps available that make tracking spending just about brain dead simple. One of our favorites is Mint.com. It’s free and not only tracks your spending but will automatically divide it into categories such as rent or mortgage payment, groceries, utilities, medical bills, clothing, entertainment and so forth. You could use this information to create a budget and Mint.com we’ll even help you stay on it. In fact, if you overspend in any of your categories, Mint will send you an alert via email.

Is A Frugal Budget Really HelpfulWhen you know what you’re spending, you’ll know where you can make cuts

Once you’ve had some experience with your budget, you should be able to find areas where you can cut your spending. Most people divide their budgets into two major categories – fixed expenses and discretionary expenses. You may not be able to do much about your fixed expenses such as your rent or mortgage payment, auto loan and utilities. But you should be able to find areas in your discretionary spending where you could make cuts. Take groceries as an example. If you focus your attention on cutting your food costs by careful shopping and the use of coupons, you might be able to cut those costs in half or better. This will free up money you could use to pay down and ultimately pay off those credit card debts.

The snowball strategy

If your goal is to get those credit card debts paid off, one of the best ways to do this is what’s called the snowball strategy. This means ordering your debts from the one with the lowest balance down to the one with the highest. You then focus your attention on paying off that debt with the lowest balance while continuing to make at least the minimum payments on your other debts. When you get that first debt paid off, you will have extra money to pay off the debt with the second lowest balance and so on. If you’re wondering why this is called the snowball strategy it’s because the idea behind it is that as you pay off each of your debts, you will gain momentum to continue paying them off just as a snowball rolling downhill gathers momentum.

Note: If you’d like to know more about how to snowball your debt, here’s a short video with more information …

Why Are Millennials Using Credit Cards For Small Purchases?

paying through a card in a pubWe have read a lot of news reports that tell us how young adults are being eaten alive by student loans. It is a scary situation because these young people are the future of the country. If they are so burdened with debt, how can they hope to improve our still fragile economy?

Not only are they in trouble with their student loans, they are also having a lot of problems with their credit card debt. While it is not as great as their elders, the combination of their debts from their college education and credit cards add up to be a formidable financial problem.

To add to this debt situation, this generation seems to lack in terms of financial literacy. A study done by FINRA.org revealed that Millennials, compared to other generations, are also displaying low levels of financial literacy. The study conducted by FINRA Investor Education Foundation also revealed that this generation engage in financial behaviors that are sure to lead them to problems later on. The study involved answering a series of questions and in the age bracket of 18 to 26, a mere 18% was able to answer 4 to 5 questions correctly (from a questionnaire of 5).

According to the observations from the study, Millennials stepped into adulthood amidst a bad economic condition. Student loans are high, jobs are scarce and businesses and households are all suffering from the Great Recession.

Currently, states are working on the financial literacy problem through the inclusion of economics and personal finance in the K-12 curriculum. But we have to think about how to address the bad financial behavior of this generation. It seems that one of the behaviors that we need to be looking into is the use of credit cards.

Study shows Millennials like to use cards for minimal purchases

According to a study done by CreditCards.com, Millennials have this knack of using credit cards for small purchases. Things like coffee, newspaper, and even chewing gum – Millennials love to use their card. Some of them use debit cards but a lot of them use credit as their mode of payment. This seemingly casual way of making purchases on credit is scary because it is easy to forget just how destructive it can be. It will also make us too reliant on these cards when making any kind of purchase.

The survey was done on 983 adults – all of which are credit card holders. The results gave us the following insights:

  • ⅓ of respondents use their cards to make purchases that are less than $5.
  • Of the respondents that are aged 18-29 years old, majority of them prefer using plastic to cash. The percentage goes down as those who are older are more inclined to use cash over credit cards. In fact, of those who are retired (65 and above), 82% of them prefer to use cash.
  • Those who graduated or attended college are revealed to be more comfortable in using cards. 18% of those who got a college degree use their credit cards for small purchases compared to 6% of those who did not attend college. It can be assumed that those with college degrees are more confident about their ability to pay back their charges.
  • The higher the income bracket, the higher percentage of cardholders will use plastic when making small purchases. When the consumer is employed full time, it also affects how they use their cards – which is more likely than those who have a part time job or are unemployed.

In truth, most of the people who expressed preference for using credit cards are those who have the ability to pay it back. Things like a college degree, higher income and employment stability affect the frequency of credit card use.

It had long been a debate as to paying in cash or credit is the smarter way to spend you money. In truth, both of them have their own pros and cons. But when Millennials are asked why they prefer to use credit cards, they gave a lot of answers.

  • Buying with cards is just as easy as buying with cash – thanks to the advancements in technology.
  • Credit card purchases can be done in almost all merchant stores.
  • Rewards are more prominent and attractive. It motivates consumers to make purchases through credit cards.
  • Trips to the bank to withdraw cash is no longer necessary.
  • Making small expenses makes the debt more manageable.
  • Allows Millennials to build up their credit history.

When is it okay to use your credit card account

While the convenience of using credit cards may be there, it is very important that Millennials be very careful about not over charging. It can actually go both ways. The small purchases can allow consumers to pay off their debts immediately. But at the same time, it can also keep them relaxed about payments – since it is small anyway.

It really depends on what you know about proper credit management. If you need a reason to use credit cards, here are 4 good reasons to use them even for small purchases.

When you need to boost your credit score

The thing about Millennials is they still have a short credit history. This makes it difficult for them to make the right investments that involve personal or secured loans. According to an article from NerdWallet.com Millennials are struggling to build credit because before you can get a loan, you need to good credit score. But how can you get a good score if no one will trust you with a loan? Well this is where credit cards can be helpful. You can get a secured card, use it for small purchases, pay it off immediately and it should be enough to help put data into your thin credit history.

When you can pay it off immediately

It is also alright to use your credit card even for small purchases if you have the discipline to pay it all off immediately. Some people use their cards even though they have the cash in their bank accounts. They take note of the amount they spent on their cards and makes sure that the cash equivalent is secure in their bank accounts. That way, when the bill comes in, they have the funds to pay everything back at once. If this is done before the grace period expires, then the interest rate or finance charges will not be included in the payment.

When the rewards are worth it

Lastly, if you think that the rewards are worth it, then go ahead and keep on using the card. There are certain rewards card that can save you more money – as long as you understand how to use and maximize it. For instance, if the rewards are something that you need around the house, then this is beneficial to you. As long as your purchases to get that rewards are also necessary, then using your credit cards to get the reward should be sensible.

There is nothing wrong about using your credit card for any kind of purchase. If you decide to use it for small or expensive purchases alone, that is all up to you. However, it is vital for you to understand that credit management is the key to keep yourself from incurring problems with your credit card debt. As long as you are responsible, then using your credit cards should not bring any danger into your finances.

How To Improve Your Credit Score Without Making Yourself Crazy

how debt relief affects credit scoreYou do know what your credit score is, right? If not, now would be a good time to learn what it is. The reason for this is simple. Your credit score rules your credit life. If you have a poor credit score you may not be able to rent an apartment, buy a house or a car or get new credit cards. You may have to pay more for your home and auto insurance and for any loan you are able to get.

So what the heck is a credit score?

For many years the only way a lender could determine whether or not to loan you money was to sit down and plow through your credit reports from the three credit reporting bureaus. As you might imagine this was a very time-consuming process. The people at what was then called Fair Isaac Corporation (now known as FICO) felt there had to be a better answer. Its solution was to turn all of those credit reports into a single three-digit number – your credit score. How FICO pulled this off is based on an algorithm that’s known only to it. If you don’t know your FICO score you can get it at www.myfico.com for $19.95 or for free if you take out a free trial subscription to its Score Watch program. It’s also possible to get a version of your credit score free – though it won’t be your true FICO score – from the three credit reporting bureaus or from independent websites such as CreditKarma.com or CreditSesame.com. If you have a Discover card you’re probably already getting your credit score each month along with your statement.

What lenders look for

When a potential lender checks your credit score it generally views it in ranges as follows:

  • Between 700 and 850 – Very good or excellent credit score
  • Between 680 and 699 – Good credit score
  • Between 620 and 679 – Average or OK score
  • Between 580 and 619 – Low credit score
  • Between 500 and 579 – Poor credit score
  • Between 300 and 499 – Bad credit score

If you have a credit score lower than 580 you need to improve it and you can – by following these tips. And they’re easy enough that following them won’t make you crazy.

Pay your debts on time

On the face of it this may seem too simple but if you create an history of consistently making your payments on time, this will boost your credit score. If you have a car payment, credit card balances, a mortgage or student loans make sure you don’t miss your payments. If you do, your account could be turned over to a collection agency and trust us, you don’t want this to happen. A debt collector can be your worst nightmare as many of them are so tenacious they make a pit bull look like a kitten in comparison

Pay off your credit cards

Here’s another simple thing you could do and that’s pay off your credit cards. If possible, pay off your full balance or balances and then go a month without using your cards. This stops you from having to pay interest, saves you money and will, of course, increase your credit score.

Fix errors

To err is human but to fix mistakes in your credit reports is divine. One recent study revealed that nearly 25% of us have errors in our credit reports that could be affecting our credit scores. You need to get your three credit reports from the credit reporting agencies – Experian, Equifax and TransUnion and go over them with a fine tooth comb. If you find errors you will need to write a letter disputing them to the appropriate credit bureau. Your letter should identify each of the items in your report that you are disputing. You will need to include whatever documentation you have that proves your case and explain why you are disputing the information. Make sure you also request that the erroneous item or items be removed or corrected. It’s best to send your letter by certified mail, return receipt requested, so you can prove that the credit-reporting agency received it. Be sure to keep a copy of your letter and your documentation.

Moderation in all things

This phrase was attributed by the Greek philosopher Aristotle to Chilo, one of ancient Greece’s Seven Sages. It basically means nothing in excess and this is especially true when it comes to credit cards. Most experts say that you should only use 20% or less of your available credit. In other words, if you have credit cards with a total credit limit of $1000, you should keep your balances under $200, which will be very good for your score.

Up your credit limit

If that 20% doesn’t give you enough credit to satisfy your monthly needs, contact your credit card issuer and ask it to increase your limit. This will keep your usage ratio low while allowing you to spend more. As an alternate to this, you could keep smaller balances on multiple cards to maintain the right ratio.

Resist the impulse to open more accounts

One of the problems with credit cards is that it is simply too easy to open new accounts. Just about every time you check out at a store you’ll be offered the opportunity to get a new card. Also, the credit card issuers are offering more and more incentives to open their cards such as cash back and airline mileage. But each time you apply for a credit card it dings your credit score by at least two points. Plus, the more credit cards you have the more tempted you might be to use them.

Adult WomanHang on to your older cards

Here’s a tip that’s pretty darn simple. Just hang on to those older cards. If you have been making your payments on them, this is a good indicator that you are a responsible user of credit. In the event you feel you have too many credit cards and need to close a few accounts, close the newest ones first. Also, make sure you use those older cards occasionally so that your account will look active.

Time will go by

If you were forced to declare bankruptcy because of out-of-control spending or bad luck such as an unexpected illness or loss of a job, you will just need to let time pass. It can take seven or even 10 years for that bankruptcy to drop off your credit report. The good news is that if you let time pass and that bankruptcy drops off your report, your credit score will improve significantly.

How about a secured card?

In the event you are waiting for something to drop off your credit report such as a bankruptcy or an item that went into default, you might get a secured credit card. This is where you make a cash deposit to “secure” the card. You can then use it until you’ve depleted your deposit at which time you can either add more money or simply throw away the card. But the important thing is that if you use it wisely, it will help you rebuild your credit.

The net/net

The bottom line is that it if you follow the simple tips you’ve read in this article, you can increase your credit score and have better credit without making yourself crazy

3 Facts About College That Will Set Up Your Financial Future

student holding a past due envelopIf you want to keep college debt from crippling your financial future, you need to make sure that you will act appropriately while you are in still in school. Some people make the mistake of partying all the way through college and end up living like a student on a limited budget once they start working. That is because they are already paying for the financial mistakes that they made in the past.

Study shows that what you do in college will affect your life

What you do in college have serious effects to your future. In fact, Gallup.com conducted a poll survey that proved how a students life in college affected them after graduation. It is interesting to note that your level of work engagement and your overall well being will be affected by how you acted back in college. The bottom line of the study revealed that college graduates would have been more engaged with their work and thriving in various areas of their well being if:

  • Their school prepared the for life after graduation
  • Their school were sincerely concerned about the long term success of students
  • They had a mentor in college, had a professor who got them excited about learning and cared about students as a person
  • They had an internship in college, active in extracurricular activities and worked on a project that took the whole semester or more to complete

3 important truths about college life and your future financial standing

From the above study emerges three important truths about your college life that has a significant impact on your financial future. Let us discuss them one by one.

Where you graduate is not important.

An article published on the NYTimes.com revealed an interview with Laszlo Bock, the VP of Google that is in charge of hiring people. He mentioned that the GPA and the school were a graduate came predicts nothing about how they will perform in the company. In fact, there is a growing number of people in the company that did not have any college degree. While good grades are still important, they have observed that it is not the defining factor that will make a graduate successful. What is important are the skills that the student will get from their school. That being said, you should know that you can come from a community college and avoid high student loans and still be successful in big companies like Google.

What happens to you in college will set you up for life after graduation.

In connection with the previous, the Gallup study revealed that it is experience and skills that you will get from college that will define your success in your work. In effect, that will have a profound impact on your earning potential. Business owners are attracted to people of skill, not those who graduated from Ivy League schools. If you tap into the right influences like a mentor and social skills you get from extracurricular activities, you will find yourself more engaged to your work. The dedication that you will display can be evident in your output and that will make you shine in your work.

What you spend in college will come haunt you after.

This is not really directly indicated in the Gallup study but considering that we are trying to identify the factors that will affect your financial future, we need to incorporate this fact. It can be logically assumed that student loans, credit card debt – these will haunt your paycheck for the next few years – even a decade. You need to be careful about how you will use them or if you will use them at all in college. According to an article published on Demos.org, the higher your student loan debt, the more of your lifetime wealth will be compromised. Instead of investing the money you get from your paycheck, you have to share that with your payments. This is true for both student loans and credit card debt.

Financial practices of a college student to set them up for success

Given the truths that we just discussed, you have to consider how your financial practices in college should be implemented to set up your future correctly. You can influence your financial future even as early as your high school days. If you start saving your college to avoid student loans, that will start you up on your personal wealth early in life.

But even if you failed to start while you were in high school, you still have time to correct your finances when you reach college. Here are 5 things that you can do to take care of your finances as early as now.

  • Implement a budget plan. Regardless if your parents are supporting you 100% or not, you have implement a budget in your life. This is a habit that you will need until the very end. It will help you reach your financial goals and more importantly, it will keep you from debt. Most people live on a limited income and a budget plan will allow you to point out the expenses that you need to prioritize. It will help you make smart choices about your money while in college.
  • Learn about your debts. This is true for both student loans and credit card debt. A secure financial future does not necessarily mean you do not have debt. It means you may have debt but you have full control over it. Not only that, it also means you have a backup plan in case your main source of income is compromised. To create this plan, you need to understand your debts thoroughly. Your ignorance might lead you to make mistakes that could have been avoided if you only researched about your debts.
  • Reserve your credit cards only for emergencies. Student loans are bad enough and your financial future will be much worse if you combine it with unnecessary credit card debt. You can understand how this can jeopardize your financial future. Keep your debts low and if you have to use a credit card, make sure that you have a plan to pay it off before the grace period ends.
  • Get a job. If you need to get money for your college expenses, do not use your card or go running to your parents. Get a job and finance your own expenses. Not only will it teach you to be self-reliant, it will also give you the skills that will prove to be helpful when you start applying for a job. Remember that internships and skills are major factors that Gallup mentioned you need to be engaged and thriving in your future life.
  • Live a frugal life. When you are a student, you get all sorts of discounts. Make sure that you source these out so frugality will not seem restricting. If you learn about the true practices of frugal living, you will realize that it is not about deprivation. It is learning how to have the things that you used to enjoy without spending too much for it.

Statistics show that college graduates enter the corporate world with a lot of regrets about life. You do not have to be part of this statistic. Make sure that you will learn how to set up your financial future so it will be poised to grow exponentially. If that means you need to stay away from student loans, then you should know that your skills and college experiences are more important than the expensive colleges that are popularly preferred. The quality of college education is important – not where you got it.

In case you need help with your student loans, National Debt Relief has a program that can provide you with consultation services. Their trained experts can advise you about you student loan repayment options based on the type of debt that you have and your employment situation. They will even help you with the paper work involved. This service has a one time fee that will be placed in an escrow account. When you are satisfied with the service and the documentations done on your behalf, that is the only time the fee can be released. There is no upfront or recurring maintenance fee.

Could You Buy A 2004 Subaru For What Your Credit Cards Are Costing You?

frustrated looking woman looking at a laptopDid you know that if you have $30,000 in credit card debt at 19% you’re paying enough in interest in just a year to buy a 2004 Subaru WRX or a 2004 Ford Focus SVT? Those two cars were recently on a list of AOLAutos.com’s best used cars for $5000. And $5000 is what you’d be paying a year if you did owe $30,000 on credit cards.

Not good long-term loans

Don’t get us wrong. Credit cards definitely have a place in your life. They can be great for buying an item when you don’t have enough cash with you to pay for it or as a short-term loan. But credit cards should never be used as a long-term loan – due to their prohibitively high interest rates — vs. a personal loan or a homeowner equity line of credit where you’d pay something like 3.99%.

If you’re working to get out of debt

If you want to get out from under that load of debt, the first thing you need to do is get a handle on your spending. The reason why you’re in debt is simple. You’re spending more each month than you have money coming in. And the only way to fix this is to determine where your money’s going. You need to then sit down and develop a budget to get your spending under control. If you find that your budget won’t handle both your living expenses and paying down your debts, you’ll have to either find ways to earn more or to cut your expenses.

Credit card transfer vs. a home equity line of credit

In the meantime there are two ways to get your interest rates reduced while you’re working to pay off your credit card debts. The first is to transfer it to several 0% interest balance transfer cards and the second – if you own your house – is to get a home equity line of credit.

So, which would make the most sense?

0% introductory rate vs. a home equity line of credit

Transferring your high interest credit card debts to new ones with 0% introductory rates or getting a home equity line of credit would both give you a lower interest rate. And either could help you pay off that debt as quickly as possible.

The fog of war

This is a phrase that is often used to describe what happens once a battle begins. It’s a shorthand way of saying that no matter how carefully a general crafts a battle plan once the fighting begins a sort of fog sets in and things don’t go according to plan. Unfortunately, the same is true about a plan for getting out of debt – things don’t always go according to plan.

A home equity loan

As an example of this, take a home equity line of credit. If you were to get one of these loans to pay off that $29,000 in credit card debt and then pay it totally off as quickly as possible, this would be a great solution. But what happens to many people is they get a line of credit with all the best intentions for paying it back. But then a bank offers them a higher limit than they need to pay off their credit card debts. They believe that’s okay and convince themselves they won’t use that extra credit.

By the way — if you’re not familiar with home equity loans here – courtesy of National Debt Relief – is a video that explains the differences between a home equity loan and a home equity line of credit.

Twice as much debt

What happens to many people is they then run into a bunch of bad luck, use up the entire line of credit and are forced to once again run up their credit card debts. And before they know it, they have twice as much debt as before they took out the loan. The same thing can happen with 0% interest balance transfer cards. People use the money to pay off their high-interest credit cards but forget to close them. They eventually find themselves short of money and begin using the old cards again and end up having both the old cards and the new ones and their balances just keep ballooning.

Have an emergency fund

If you create a budget to get your spending under control, try to make one that includes money for an emergency fund. Ideally, this fund should be the equivalent of six months of living expenses. But if that doesn’t seem doable, shoot for at least three months’ worth. Then when an emergency hits — and trust us that one eventually will — you won’t have to use a credit card to pay for it.

To escape the debt trap

If your goal is to get out of the debt trap, there are some things you should do besides creating an emergency fund.

For one thing you should close those old credit cards the minute you pay them off — whether you use new 0% interest cards or a home equity line of credit. This will cause your credit score to drop but totally eliminates the possibility that you would be tempted to use them again.

Second, if you opt for a home equity line of credit, try to get one with a limit that’s no higher than what you need to pay off your old credit cards. Some financial experts might advise you to get the highest line of credit possible, as this would help your debt-to-available-credit ratio, which could boost your credit score. But the extra points you would earn is less important than getting out of debt. The best way to improve your debt-to-available-credit ratio is to pay down your debt and not to expose yourself to taking on even more. And if you don’t get a higher line of credit than you actually need, you will never be tempted to use that extra credit.

A 0% transfer card might be best

Between the options of transferring your high-interest balances to 0% interest cards or getting a home equity line of credit, we recommend the balance transfers – but only if you’re positive you can pay off your balances before your introductory periods end. The reason for this is the transfer fees you might be charged ($300 to $500 per transfer) will be far less than the interest you would pay on a home equity line of credit over the same time period. But you need to be really careful that you do pay off the balances on those new cards before your introductory periods expire or you could end up right back where you started or in even worse financial shape.

It’s not easy but it should be worth it

Paying off a huge pile of debt like our hypothetical $29,000 is not an easy task. It takes time and self-discipline. The reason you got into trouble with debt is because you were living a lifestyle you couldn’t afford. The only way to fix this is to change your lifestyle to match your income, which will mean you will need to make some sacrifices. You might have to find a cheaper place to live, trade in your car for a used one with more miles (and not as much pizazz), quit eating out three or four times a week or stop hanging out with friends so often.

But just imagine how you will feel when you become debt free. You’ll be able to sleep better at night, which means waking up feeling refreshed and looking forward to your day. If you’ve had debt collectors hounding you unmercifully, they will go away. You won’t be paying interest on your debts so you’ll have more money to save and invest for your long-term goals such as buying a home or for your retirement. You’ll have money for an emergency so that you won’t be wiped out when you have an unexpected medical bill or car repair. You’ll be able to face the world knowing that you’re in debt to no one and that no creditor can make your life miserable.
Wouldn’t this be worth some short-term sacrifices?

Shocking News – Your Credit Card Purchases Could Be Repossessed!

grandma looking shockedYou recently purchased a washer and dryer for $1100 and now the store wants it back? It could actually happen. Many credit cards – even some of the store cards — permit the creditor to repossess items you purchased if you don’t complete your payment. This is based on an analysis done by CreditCards.com.

What it found

What this analysis revealed is that credit cards are generally called unsecured debts. This means that there is no piece of property used as collateral to secure them. The fact that credit cards are unsecured debt is often used to explain why their interest rates are more than other types of debt like auto loans and mortgages. In comparison, these are called secured debt because they are backed up by collateral such as your house or automobile.

A security interest

However, many cards including some of those medical credit cards can actually threaten to repossess your stuff. This is according to credit card agreements that have been filed with the regulators. In fact, there is in excess of 200 card agreements that give a “security interest” to the bank on items you purchase. This does not include secured cards you would use for rebuilding your credit. But store cards from Big Lots, Costco and Guitar Center that are backed by Capitol One contain this clause. So do some of the credit cards such as the high interest Wells Fargo Financial card.

Easily overlooked

These repossession rights are one of the clauses in credit card agreements that are typically overlooked. The problem is that most people who apply for credit cards do this based on their interest rates or their rewards and skip right past their other terms. When threatened with repossession people tend to say, “Wow! I had no idea I had agreed to that.” But they do agree to this whenever they sign a credit card receipt.

How this works

If you think that if you file for bankruptcy your household goods will be protected, this may not be the case. If you purchased an item with a credit card that has a purchase money security interest, this generally allows the lender to repossess the item until you’ve paid your entire balance. However, in most credit card contracts this security interest phrase is not explained. This can leave the threat of having the item repossessed very unclear. With several store cards backed by Capital One the security interest language provides the bank with a claim on even extended service contracts and insurance as well as merchandise. This term also assigns you part of the responsibility for taking purchases back. What this security clause states is that, “If we take back any good we may charge you our costs and require you to make the goods available at a convenient place of our choice as allowed by law.” For that matter, Capital One even says that the store has the right to contact you via personal visits – at home or at work.

Rarely enforced

Fortunately, threats to seize an item you purchased with a credit card are rarely followed up on. It is difficult to resell a person’s used possessions and repo men must have a court order before the sheriff can enter your house. The reality is that nobody wants used stuff back. But the possibility of having an item repossessed is treasured as a powerful collection tactic. Collectors often use this as a way to obtain a settlement check. This is because households that are debt strapped might rather pay up than risk losing their refrigerators, laptops, HDTVs or washer-dryer combinations.

What to do if threatened with repossession

How serious the threat of repossession could be will depend largely on the amount of money involved. In other words, the threat might be a lot more in the case of a $1100 washer-dryer combo vs. a $300 laptop. One bankruptcy attorney has recommended that if you are threatened with repossession you say you will pay the value of the item as used, which will be much less than the amount being demanded. And while the possibility of having that item repossessed is very low, a debt collector could threaten civil action or possibly even criminal charges.

Credit card fees raise costs

If you carry several credit cards with balances you need to be aware that there are some changes being made in fees that can increase your cards’ costs. For example, on its general-purpose card Citi did away with a deal on late fees it was giving those of its customers with low balances. Prior to this, first-time offenders had a $15 late fee if their balances were below $100. However, this now costs everybody $25 – regardless of his or her balances. In addition, there can now be fees if your credit limit is increased whether you asked for it or not. However, these fees usually are linked to subprime cards such as one from First Premier Bank with its 36% interest rate as well as a pre-account opening fee and an annual fee.

Complex fee structures

While the CARD Act has made it easier to understand credit card agreements in general, there can still be complicated fee structures that make it tough for consumers to understand what their cards are actually costing them. In many cases, people just aren’t equipped to decide what their cards are really costing them. The card agreements themselves are now a bit easier to understand. Since the year 2008, the average credit card agreement has shrunk by about 2100 words, which is 24% skinnier and readability has also improved. Despite all this, many consumers are still shocked when they get down into the fine print of a credit card agreement. The problem is that the credit card companies will always try to bury things. This definitely puts the burden on you as you must read all the fine print in a credit card agreement before you sign on the dotted line to be sure you understand what that card will really cost you.

One good exampleHand holding batch of credit cards credit card debt

One good example of why it makes sense to read the fine print is those 0% interest balance transfer cards. On the face of it they can seem like a very good option. For example, if you’re carrying $10,000 in debt on credit cards with an average interest rate of 19%, you could transfer their balances to a new one where you would pay zero interest for anywhere from 12 to 18 months. This means all of your monthly payments would go towards reducing your balance. If you were to heavy up on those payments you might even be able to become debt-free before your introductory period expired. However, if you read the fine print you’ll find that some of these cards have a balance transfer fee of $300 or even $500. Before you sign up for one of them be sure to do the math, as a transfer fee could easily reduce the amount of money you would save by making the transfer.

Just one missed payment

It’s also important to understand what happens to your credit score if you miss just one payment on a credit card. Most experts believe that this would lower your credit score by as many as 50 points. If you had a credit score of 600 this would drop you from having an “average or okay” credit score to having a “poor” score, which would make it more difficult for you to get new credit. Plus, it would likely increase your interest charges and even the cost of your auto insurance.

Credit scores rule

Whether we like it or not, our credit scores rule our financial lives. In fact, our credit scores are so important that the Discover Card has begun putting our FICO scores on its monthly statements. So if you have a Discover card, you should already know your credit score – for good or for bad. If not, you can buy it on the site http://myfico.com for $19.95 or get it free by signing up for a free trial of its Score Watch program. Or you could go to a site such as CreditKarma.com or CreditSesame.com where you can get a version of your credit score free – though it won’t be your true FICO score.

Are You A Credit Card Revolver Hacker or Deadbeat?

Long line of credit cards (generic)Have you ever stopped to think about how you handle your credit cards? If you’re typical, you probably haven’t given much thought to this. You use your credit cards, receive statements, pay your balances (we hope) and that’s it.

But the credit card providers don’t look at things the same way. In fact, they actually divide credit card users into three distinct categories as follows.

1. The revolver

This is the person that credit companies love the most. And if this is you they want to keep you as a customer for as long as they can. Why do credit card companies love Revolvers? The reason is simple. These people are virtual money machines for the credit card companies. The name Revolver refers to people who do not pay off their balances at the end of every month, which causes revenue-generating interest to build up and increases the total amount they’ll eventually have to pay. The most diverse type of credit card users is probably the Revolvers. They make up a wide demographic that includes everything from minimum-wage workers to high-powered financiers. If you carry a balance from month to month it doesn’t matter whether you’re the type of person who buys big-ticket items on a small time budget and then makes the minimum payments on a maxed out card or not, you’re still a Revolver. However, it isn’t necessarily bad to be a Revolver. It’s just that you’ll usually end up paying more for most of the things you buy than other people do.

2. The deadbeat

When you see the term deadbeat you might immediately think it’s a person that doesn’t pay their debts. Well, you’d be wrong. A Deadbeat is really a responsible credit card user. But the credit card companies don’t make a lot of money on Deadbeats, which is why they give them such a negative name.

Deadbeats have one simple thing in common that’s undesirable to the credit card companies but desirable to almost everyone else. These are people who pay their credit card bills in full every month. Unshakable deadbeats are credit card users who never pay a single penny in interest, which keeps their credit cost as low as is financially possible. A slightly more easy-going cousin of the Deadbeat is the Transacter. This is a person that typically pays their balances in full and on time but that sometimes allows small amounts of money to ride from month-to-month.

Deadbeats are usually people who are financially responsible and don’t spend more money than they know they can afford even when faced with tantalizing bargains. If you are a Deadbeat and not admired by your friends and family members for your self-control, these people are probably just not paying a sufficient amount of attention.

3. The card hacker

No, this is not a person who is a con artist or identity thief. In this case, Hacker is the type of credit card user who opens two cards at once. One of them will have big bonuses and double rewards in key categories but a very high APR. Simultaneous to this the Hacker will also open a bare-bones reward card or one of those 0% interest balance transfer cards where there are no interest charges for the first 12 months.

Once these people have opened these two accounts they will then charge a few thousand dollars on the big rewards card. For example, they might book a vacation they had already budgeted for or purchase major appliances. They then immediately move this charge over to the card with the low rates on balance transfers. What ultimately happens is that the Hacker ends up with a big stack of earned rewards points and then a full year to pay off their balances before they have to pay any interest.

Does this sound like an exciting strategy? It might be but it does have its risks. Before you attempt credit card hacking, you need to take into account whatever balance transfer fees there might be which would negate the benefits.

Which one are you?

Judging by the statistics, the odds are that you’re a Revolver. The Financial Industry Regulatory Authority released a study in April 2012 that 55% of men and 60% of women carry a balance from month to month on their credit cards. In addition, about 40% of American adults make just their minimum payments every month, which means they’re paying more than just the retail price of their purchases.

There’s nothing wrong with being a Revolver

College student thinking while holding credit card

There is really nothing bad about being a credit card Hacker or Revolver. It’s your own business how you choose you to use your credit cards. But our advice is to not let that nasty sounding term of Deadbeat put you off. When it comes to credit cards, it’s definitely best to be a Deadbeat.

Watch out for misleading credit card offers

Whether you’re a Revolver, Hacker or Deadbeat you need to watch out for misleading credit card offers. We read of one recently where the person received a letter from Bank of America that referred to an” Annual Privacy Notice” and on the inside included several mentions of “your prepaid card.” Since the person who received this offer was not a Bank of America customer, she was immediately suspicious. If you receive envelopes like this that refer to “annual privacy notices” or to prepaid cards from banks where you don’t have accounts, be sure to read fine print. These mailing pieces often have misleading print on the outside and then turn out to be advertisements or calls for action for some product or service.

Stay safe

If you are receiving solicitations like this or any others that refer to your privacy or that include calls for action you don’t understand, be sure to get your credit reports from the three credit reporting bureaus – Experian, Equifax and TransUnion. You can get them free once a year either from the individual credit bureaus or altogether on the site www.annualcreditreport.com. You will need to carefully review these reports checking out every entry including all of your accounts, and your identification, which would include your name, address and Social Security number. Be sure to look for any inquiries or new accounts you don’t recognize. In the event you find there are accounts you don’t remember having opened or information that is incorrect, immediately contact the appropriate credit bureau and ask that it put an alert on your credit report and let you know if there are any new inquiries.

If you find mistakes

In addition to looking for accounts you don’t remember having opened, you should look for errors in your credit report. Last year the Federal Trade Commission released a study that 20% of us have errors in our credit reports and 5% of us have errors so serious they could be hurting our credit scores. You should look especially for items that have gone to collection, judgments, missed payments, late payments, bankruptcies foreclosures and tax liens. If you find any of these in your credit reports and you believe they are errors, you will need to contact the appropriate credit bureau and dispute them. This means writing a letter to the bureau along with whatever documentation you have that supports your case. You should send copies of this to the other two credit bureaus as well. When you dispute an item, the credit bureau is required by law to contact the institution that provided the information and ask that it be validated. In the event the institution cannot validate the information or fails to respond within 30 days, the item must be removed from your credit report.

7 Credit Card Traps You Should Be Careful With

credit card trapHave you ever been in credit card hell? This is a financial state when you realize that your credit cards are not really doing you any good. It is when you are put in a situation wherein you have been sucked into one of the credit card traps that is keeping you buried under loads of financial obligations.

What makes this debt easy to fall into is the fact that you can use it over and over again. It is not like the traditional loan that you apply for once and when you have used up the funds, you have to apply again to get more money. A credit card allows you to use it again and again – that makes it a dangerous habit to get used to. If you are not careful, you could end up burying yourself under a mountain of debt.

In fact, TIME.com reported that the current debt of Americans have reached really high amounts already – scary high rates to be exact. That is how the article described it. They cited data from the Federal Reserve Bank of New York that the current debt is not as $11.52 trillion. It is an amount higher than it had ever been since 2011. Not only that, the article said that it is still rising quite rapidly. The debt increased by $241 billion during Q4 of 2013. That is the highest growth with 2007 – which was the start of the most recent recession.

Does that mean we have to brace ourselves for another financial crisis? That all depends on how we act now.

7 credit card qualities that double as a financial trap

One of the things that you can do is to avoid the tricky debt pitfalls that can ruin your financial situation. In particular, you may want to be a smart credit card user. That begins by learning the credit card traps that will put you in danger of too much debt. Here are the 7 qualities of a card that you need to be careful with. If you do not know enough about them, they can end up putting you in debt.

  1. Minimum payment requirement. The first is about paying only the minimum of your debts. If you compute it, you will realize that it will take you a lifetime (sometimes literally!) to finish paying off your credit card balance in full. That is because the minimum payment requirement is only around 4% of your balance. The rest are finance charges. If you want to significantly reduce your debts, you have to learn how to pay more than the minimum.

  2. Late payments. Another one of the credit card traps that you need to be cautious of are late payments. This is not just the $25 to $35 charge that you will be paying on top of your balance and finance charge. It can also include the APR (Annual Percentage Rate) penalty that you will be imposed with until after you have made 6 payments on time.

  3. Payment processing schedule. In line with number 2, you need to be aware of the specific schedule of your payment cut off. It is usually in the afternoon of your due date. If you sent in your payment even a minute late, that can trigger the late payment fee. You can call the credit card company to waive this penalty fee so that you will not be charged – at least, if you have been late for only a minute or a day. But if you know that you are going to be late, you may want to call your creditor immediately to ask for an extension.

  4. Introductory fixed interest rate. The law allows credit card companies to change your APR anytime they wish. They only have to give you advice ahead of time. Sometimes, credit card companies will offer a fixed interest rate on new accounts but do not be blinded by that. In most cases, that will change after the first year is up. Make sure you are aware of that before signing up for the card. Ask when the new rate will take effect and how high it will be.

  5. Balance transfer. Credit card traps also include the debt relief option known as balance transfers. It is true that a balance transfer can help you get debt relief but you have to understand the rules first. This is a new card that is offered with a 0% interest rate. This is only for a specific period – usually between 6 to 18 months. After that, your rate will change to the usual high interest rate of credit cards. Unless you can pay the credit card debt completely within the promo period or at least a significant part of it, this debt solution will not help you a lot.

  6. Cash advance. Be careful of cash advances in credit cards. While this can help you during emergencies, it will be imposed with very high rates. If you cannot pay it back immediately, it can accumulate quite easily. Try to search for other options to finance your need. Credit card cash advances should be one of your very last options – along the same level as payday loans.

  7. Reward programs. The last of the credit card traps that you may want to be careful with are the reward programs. If you are only getting the card because of the rewards, you need to come up with a better reason than that. Also, you may want to maximize these rewards to benefit from the card.

These credit card traps can put you in debt if you ignore them. Make sure you pay attention to them so they will not become pitfalls.

How Americans use their credit cards

Although these traps will endanger you to fall into credit card debt, the main blame will still be on your own spending habits. It is just in our culture to be spenders. In fact, the US economy relies heavily on consumer spending to thrive. That being said, you can expect that the government, businesses and everything around you will be encouraging you to keep on spending your money.

Based on an infographic from The Credit Examiner, the credit card usage statistics reveal that in 2012, Americans spent their credit cards on the following:

  • 81% on travel expenses

  • 77% on expensive purchases

  • 46% on personal items

  • 44% dining out

  • 38% on groceries

  • 37% on entertainment

  • 20% on household bills

  • 15% on small expenses

Source: http://www.thecreditexaminer.com/2012-us-credit-card-usage-statistics-infographic/

Most of the expenses here are actually unnecessary, if you think about it. In another infographic, The Credit Examiner showed some interesting statistics and facts about overspending in the country. Apparently, in 2012, the picture of consumer spending are as follows:

  • 52% of consumers are spending beyond their means.

  • 21% of them have monthly expenses that cannot be covered by their income.

  • 13.5% of consumers are forced to alter their budgets to accommodate the overspending of the previous month

Source: http://www.thecreditexaminer.com/overspending-in-america-statistics-and-facts/

According to the last infographic, some of the reasons why consumers are overspending is because they do not have monthly saving goals. Another reason is they can easily access credit and cash. It is also noted that a lot of us misuse our credit cards.

It is apparent that managing multiple credit cards without ending in debt is a huge challenge for all of us. But you do not have to get rid of these cards if you do not have to. You just have to learn how to use it wisely.

Here is a video from National Debt Relief for more tips on how to solve credit card debt problems.

Facts About Credit Scores and Credit Cards That Might Surprise You

man holding multiple credit cardsIf you’re like us you probably take credit cards pretty much for granted. They are nice little pieces of plastic that you can whip out whenever you don’t have enough cash to pay for a purchase or when you’re running a little short and it’s not yet the end of the month. If you’re a savvy credit card user you don’t charge anything that you can’t pay off when your statement roles in so you never pay any interest charges.

The top cards

Have you been tempted to sign up for one of those cards that offer mouthwatering rewards. The top ones come with significant rewards from 2% to 5% cash back. Some even offer 0% interest for an introductory period of time. However, what these credit card offers don’t tell you is what it takes to qualify for one of them.

The credit card companies have criteria called “underwriting standards” for their cards that are closely guarded secrets. The credit card companies are much like Coca-Cola that refuses to release its recipe for Coke. The credit card providers keep secret the criteria they use to approve applicants for their most exclusive cards. However, there is information available from the site CreditKarma that provides insight into what it takes to get one of those top rewards cards. CreditKarma recently released a list of the lowest and average credit card scores of people who had been approved for some of the best and most exclusive credit card offers.

Fact #1: You could have a score in the 600s

The first surprising fact that can be gleaned from this information is that you don’t have to be a member of the “700 club.” In other words, you don’t necessarily need to have a FICO score of 700 or above to qualify for one of the top cards. While the average credit scores for people who successfully obtained the top cards did range in the low 700s, the lowest approval scores dipped well in the 600s. This is clearly because other factors are considered such as past payment history and income. This helps explain why the top credit cards from companies such as Citi, Barclaycard and Discover went to applicants with scores in the 600s.

Fact #2: 0% interest cards require a top score

A second surprising fact is that those 0% interest balance transfer cards do require a top credit score. If you’ve checked into the cards currently available, you would know that the top offer is for an 18-month introductory period. The irony is that these credit cards might be designed to help people trying to get out of credit card debt but the best ones do require a top credit score. For example, Discover and Citi are granting their 12- or 18-month cards only to people who have average scores in the low to mid-700s. If your credit score is in the mid 600s, the best you will probably be able to qualify for is one that lasts just six months.

Fact #3: Higher scores get better rewards

A third maybe not-to-surprising fact is that the higher scores get the bigger rewards. The best of these cards usually offer 2x points, cash or miles on almost every purchase. As you might expect, the average credit score required to get these cards is markedly higher than a “good” credit score. As an example of this, one version of the Barclaycard Arrival World Master Card offers 2x miles on all purchases and significant bonus miles, too. However, successful applicants for this card had average credit scores of nearly 740.

Fact #4: Students can have lower scores

Here’s one you might definitely expect, which is credit cards for students require much lower scores. In fact, the available credit score data shows that the average scores for applicants who are approved for these cards fall below 700. And the lowest scores that are approved for student cards are in the low 600s and, in some cases they even fall below 600.

Fact #5: Approval is just the start

If you are approved for one of these top credit cards this is just the start. Your credit limit and interest rate will be calculated based on your credit scores and other underwriting criteria. If you have a high score you will have higher limits and lower rates.

Something to keep in mind

If you do apply for one of the top rewards cards keep in mind that credit score information is just one factor in the card provider’s underwriting criteria. Plus, as card issuers fine-tune their underwriting standards, these criteria continually change – especially as the prime interest rate changes.

The downside of credit cardscouple worrying about finances

It doesn’t really matter much the rewards you could earn from a credit card if you’re continually racking up debt. You might think that getting 2x cash back on your Visa or MasterCard is a really good deal – but that’s only if you’re paying off your balance at the end of each month. If not, you could be racking up interest charges at the rate of 19% or even higher, which would totally wipe out those cash back rewards. The credit card companies have a grace period of anywhere from 25 to 30 days where you can pay off your balance before you begin to get hit with interest charges. If you charge a purchase the day after your card has “rolled over,” You might get nearly 2 months before that charge would come due. That’s like free money.On the other hand, if you don’t pay off your balance before or on the date it’s due, you will start piling up interest charges and could end up spiraling into a black hole of debt. Here’s an example of what we mean. If you charged $5000 on credit cards that had an average interest rate of 19% and made only the minimum monthly payment of $125, it would require roughly 273 months to pay it off (nearly 23 years) and would cost you $6,923.14 in interest charges.

If you get into credit card debt

If you’re getting to the point where you’re making late payments on your credit cards or even skipping payments, there is a good solution. It was developed by a financial expert named Dave Ramsey and is called the “snowball” method for paying off debt. The way it works is very simple. You rank your debts in order from the one with the lowest balance down to the debt that has the highest. You then concentrate on paying off that first debt being sure you continue to make the minimum payments on all your other debts. Once you have that firs card paid off, it will be easier to off the card with the next lowest balance and you will have more money available, then on to the third debt and so on.

Here’s a short video where Dave Ramsey explains more about why it’s important to get out of debt and   his snowball method.


Alternately, you could do as other financial experts counsel and arrange your debts from the one with the highest interest rate – which is costing you the most money – down to the one with the lowest. You would then focus on paying off the one with the highest interest rate then move on to the one with the next highest interest rate, etc. There are people who believe strongly in one or the other of the strategies but what it boils down to is choosing the one that makes the most sense to you.

5 Credit Card Uses That Are Actually Smart

retailer cutting a clients credit cardCredit cards have gone through a lot of bad publicity in recent years. But despite that, you should know that there are smart credit card uses that will defend their existence in the financial industry. They really have uses that are beneficial to our finances – from the convenience of a cashless transaction to the extra layer of protection for your money.

But of course, we need to learn how to use a credit card responsibly to be able to enjoy all of these benefits. If you think about it, we are to blame for our credit card problem. The card itself is not flawed. Everything boils down to how we choose to use it and how we react to the payment obligations that are expected of us after every use.

Although we are encouraged to lower our debts, statistics show that our debts are still continuing to rise. According to the latest data from the FederalReserve.gov, the total debt amount by the end of 2013 is now at $3.1 trillion. Credit card debt (included in the revolving debt category) has also risen significantly in the last quarter of 2013. In quarter 1, the revolving debt is at $849 billion. In quarter 2, it grew to $851 billion and then increased to $852  billion in quarter 3. It jumped to $861 billion by the end of the the year. Most of the growth happened in December – just as expected because of the holiday spending.

These trends show us that paying off the debt completely still involves a very long journey ahead. It is advisable that you pay off any balance that you have before you decide on any more credit card transactions in the future.

5 uses for your credit card that makes sense

Despite these, did you know that there are certain credit card uses that actually make a lot of sense? If you consider it carefully, it even makes better sense than using cash – at least, if you learn how to pay the balance properly. Here are the 5 ways you can use your credit card the smartly.

Making online purchases.

Online shopping has grown to be a very convenient way to make purchases. It beats going to the store and fighting your way through the crowd just to get what you want. In some cases, the online prices are even lower than their counterpart in the store. Statistica.com reveals an increasing trend in online shopping. In 2010, the number of online shoppers were 172.3 million who contributed $228 billion in the overall consumer spending. In 2011, it grew to 178.3 million e-shoppers who spent $256 billion. In 2012, it grew even further with 183.8 million online shoppers who spent $289 billion throughout the year. Although the figures are not yet final, it is estimated that the 2013 online shoppers will total to 189.4 million. This growth will push eCommerce shops to improve their products and services – and that makes it an ideal place to buy things. If you want to join this trend, your credit card will help protect you and give you benefits too. Things like unauthorized charges can be reversed and thus protecting your money. You can even expect a stronger return and warranty policies – thanks to your credit card account.

Paying for big products or electronic appliances.

One of the options for credit card uses is for big and expensive purchases that takes too long to save up for. If the appliance or furniture really needs to be replaced and you cannot wait to save up for it, it is okay to use your credit card. But there are some things that you need to do. First is to check the warranty clause in your card. Most credit card companies offer extended warranties. Also, you may want to check if you can avail of a zero% installment plan to pay off that debt.

Renting a vehicle.

It will be very difficult for you to rent a car without a credit card. After all, this is the guarantee of the company that you will not run off with their car. While there are very few rental companies that will allow you to do so without a card, they will place a $500 hold on your bank account for 14 days. It will also involve a credit check. All of these will be unnecessary if you have a credit card. That convenience does not have any other alternative.

Financing your travel expenses.

Card holders can also benefit from this purchasing tool during vacations or other travelling events. In case your card gets stolen while you are away, you can simply call the creditor to ask them to freeze your account. That will keep the thief from completely stealing from you. Some cards also offer you travel insurance. In case you lose your card, there are companies who will send you cash and quickly replace your card within 24 hours. There are also certain travelling perks that you can enjoy.

Booking hotel accommodations.

Renting hotel rooms wrap up our list of great credit card uses. Just like in rental cars, booking a hotel room with cash will allow hotels to put a hold on your bank account. For some establishments, they will hold the amount that you are expected to pay for throughout your stay. That includes the room rate, phone calls, taxes and other incidental costs. It can cost up to $1,000 or more. And even if you pay it in cash at the end of your stay, the hold will not be lifted immediately. So if your expected bill is $1,000, you need more than $2,000 in your bank account.

All of these expenses are better off using a credit card but remember that you still have to practice being a smart credit card user. Make sure that you have a plan in place to pay off your card balances so it will not accumulate and become a big financial problem for you in the future.

Using your credit card for emergencies is not too smart

Some financial experts will advise you to keep your credit card for emergencies. While this may seem like a sound advice, you have to approach it with caution too. It is still important for you to save up for a cash emergency fund to be your main source of financial support.

Despite that, there are two emergency credit card uses that are acceptable.

  • When your emergency cash fund is inaccessible. There are instances wherein there is no ATM around or other sources for you to withdraw your cash fund. This is the only time for you to use your credit card. When you finally have access to money, you may want to pay off your card balance immediately.

  • When your cash emergency fund is not enough to finance what you need. Sometimes, your emergency situation demands a huge amount of money. If your cash fund runs out, your credit card can be a welcome relief. This will help ease your worries as you try to get out of your financial difficulty.

These are the only time that you should consider using your credit card for emergencies. It should not be an excuse for you to not save up for your emergency fund.

Credit card uses, regardless if it is advisable or not, should always be approached with a plan. With the exception of the emergency situation, you have to keep your card expenses in your budget. That way, you can pay it off as soon as possible to minimize, if not eliminate, the finance charges that can grow your money.

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