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Study Shows an Increase in Household Debt

House with cash on the roofHousehold debt is a combination of all loans and debt a family would have. This includes mortgage loans, credit card debt, student loans, and even credit card debt. There is nothing wrong in having most of these on your list, even all of them. The idea is to properly manage the payments to allow you to still live your life the way you want to and not just live to work to make payments.

Online.wsj.com recently shared an article illustrating that there in an increase in household debt. This is a steady increase starting from July  2013 to January to March 2014. According to the Federal Reserve Bank of New York, the current numbers on  household debt is at $11.65T from $11.521. This figure shows a $129 billion increase between January and March 2014.

Mortgage in household debt

Housing is still on top of the list of household debt. Even with tough mortgage problems, housing loans still makes up the bulk of total debt in the US household. The mortgage industry now stands at $8.2T showing strength with a $116B increase. The jump from $8.08T shows as well a decrease in consumers getting into foreclosure. This is a big factor in a decline in the mortgage industry.

More than foreclosure, the increase in the industry also shows that new loans are on a slide. It has lowered to $332 billion for three quarters straight. Part of this is how the market is being priced. Most are on still a bit more than what the mass buyers can afford. With prices still at a high level, taking our new mortgage loans are still not very affordable for would-be new homeowners.

Credit cards usage in  household debt

Credit card is next on the list but consumer habits are changing leading to a decrease in the use of plastic credit. Since 2002, it is now at $659 this quarter. This amount went down by as much as $24 billion from the previous quarter. Year on year, same quarter last year was just a few point up from this quarter. This shows that credit card use in decline.

Gallup.com also confirmed this with a study that shows the decrease in the reliance of a credit card in the US economy. The study revealed that 48% pay the full amount when their bills come in. This is one perfect example of financial literacy. Making the credit card work in your favor. This is an 11% increase compared to data last 2004. Back them, only 37% paid their credit card in full.

This data also goes to show that the number of people leaving balances in their credit card has gone down. It is now only at 33% compared to 45% in 2004. Less and less people are putting off payment for the full amount. This is most likely because of the awareness on how interest payments and other finance charges are blowing up their payments more than it should be

The data also shows that more and more people are dumping excess credit cards and learning how to live off on a few plastic credits. The survey revealed that credit card ownership is at an all time low in 2014. From 2002, 17% of the respondents did not own a credit card. In 2014, that number went up to 29%. There was a 12% increase over the last 12 years showing steady and consistent decline in credit card ownership.

Digging deeper, it showed as well that consumers who carry 5 to 6 different credit cards went down from 12% to 9% in the same years. This again shows a steady 0.25% decrease every year from 2002 to present. Those that carried 7 and more credit cards also decreased from 11% to 7% showing a consistent decline of about .33% every year.

All these shows that from 2002, the average credit card ownership of US consumers went down from 3.3 to 2.6 in 2014. If the data was to exclude those that did not own a single credit card, the data would still go down from 4 to 3.7 in 2002.

Credit card ownership at a glance is:

  • No credit card highest in 2014 at 29%
  • Having 1 to 2 credit cards lowest again at 33% in 2014
  • Having 3 to 4 credit cards lowest in 2014 at 18%
  • Having 5 to 6 credit cards lowest in 2014 at 9%
  • Having 7 or more credit cards lowest in 2014 at 7%

Student loans and car loans

Student loans has taken up quite a big chunk of the debt industry when it broke into $1T total recently. This could even go up as Wnd.com  broke the story that government-funded student loans are about to increase according to an analysis of the the Congressional Budget Office.

A lot of college students and working professionals deal with student loans everyday of their lives. It is that one loan that you carry from college all the way as you walk to your first job interview and even up to the time you already have kids of your own. This is why a lot of debt collectors are earning a lot from student loans.

The balance for car loans grew as well to $875 billion with a $12 billion increase from the past. Getting a car of your own is just as much an American dream as getting a house is. Having a car of your own now is a necessity more than anything. And it is not cheap to get a car. Most first time car buyers forget that the cost does not stop in the purchase price. Gas cost should be a major consideration as well as maintenance cost. All these and more should be considered before getting a car loan.

Effects on the US Economy of credit card use

Financial literacy has a lot to do with reduced dependency of consumers with credit cards. Knowing how many card you have to carry and being able to pay for the purchases you charge is a sign of a being financially responsible. The lower number of credit card users who leaves balances in their statement goes to show as well that more and more consumers are beginning to understand how interest payments are making them pay more.

The financial crisis in 2008 was mainly due to the fact that people over borrowed and had little funds to pay it back. It started a vicious cycle of more borrowing because of living expenses and the need to pay off loans and getting and borrowing again to cover the same recurring expenses. It is only now that the economy is getting back up on its feet with the consumers leading the way.

The US economy is consumer driven. About 70% of the economy is dependent on the purchasing movements of the consumers. The more the people purchase, the better the economy is. Any sign of slowdown in the purchases of US consumers has a direct effect on the performance of the US economy.

The trend that has to be closely monitored is the combination of the slowdown in credit card ownership and a slow wage growth. The availability of using credit and the lack of funds to actually pay for credit purchases could have an adverse effect on consumer spending.

Financial literacy does not restrict purchase and limit household debt. It guides the consumer in making the right choices and makes them realize the importance of saving up for emergencies and retirement as well. It also shows the importance of dealing with debt payments and how it affects their everyday lives. Dealing with loans and debts and budgeting them are crucial in being able to financial freedom.

Understanding Convenience Fees

credit card on a keyboardConvenience fees have been creeping up in the finance industry every now and then. They key to avoiding them is to understand how they operate. It is best to tackle a problem if you know what you are dealing with. Boxing blind will only leave you exhausted and nowhere close to your target. Dig into the details and have a plan of action.

One thing to note is that convenience fees are not technically classified as deceptive as what capital one faced early last year.  There might be questionable practices in the finance industry but this is not one of them. This is actually a legitimate cost to consumer in exchange of a value-added service most commonly found in credit cards.

Distinguishing convenience fees

Convenience fees are charged on top of the purchase for a privilege. As the name suggests, it is for the convenience of the consumer to use an alternative payment method. This is a payment channel that is not the norm for the business establishment. One perfect example would be paying for credit card purchases by phone.

It indeed saves up precious resources like time and effort to transact payments using the most convenient method possible, but this practice brought about convenience fees. There are no ruling as of now on the minimum and maximum amount for assessment of this fee so it varies per transaction.

As Creditcards.com stated, convenience fees should not be confused with surcharge. These are two very different fees assessed mostly with credit cards. Surcharge is mostly using a credit card. This is of course a practice frowned upon by numerous consumers. It is a common sentiment that they should not be charged extra for buying on credit. Convenience fees, on the other hand, is added to the purchase when the payment method is not the usual practice.

Surcharging is much more controlled that convenience fees. There is a legal framework with which to work around in. Consumers should know the following to be guided with this additional fee:

  • No more than 4%. Merchants are restricted in slapping surcharge fee to credit card payments for up to  4% of the total transaction price. They are not allowed to go beyond this cap when adding surcharge to a credit card payment. Anything more than this could be a convenience fee and not surcharge.
  • Illegal in 10 states. As most consumers dislike surcharge fees, there are actually 10 states that has gone to the point as declaring them illegal. These are Connecticut, Florida, Kansas, California, Colorado, Massachusetts, New York, Texas, Oklahoma and Maine. Residents of these states enjoy a surcharge free credit card use.
  • Cash discount. Using cash is one way of getting rid of credit card debt and actually encouraged by merchants. To the point that some offer cash discounts as compared to using credit card. The ruling on this is that the prices for cash and credit purchase has to be clearly presented side by side for the consumer to see.

Concert goers in Houston got surprised to see $30 convenience fee added on to their total bill when they paid online as reported by ABC13.com. This is a steep price to pay when purchasing tickets online. Of course there is no cap on the amount but proper planning can prevent this from happening. Like buying the tickets in the venue to save $30. The dilemma comes in at the point when tickets are selling like hotcakes. The tickets can be sold out during the short amount of time it took you to o travel and buy the tickets physically.

Here is a video about the concert convenience fee:

Tucsonnewsnow.com also carried the news about University of Arizona charging students convenience fees. The school is adding a 2.5% convenience fee for the use of a credit or a debit card to pay for any bill inside the school. That could be small per transaction but totals to lot during the year considering all the student loans being shouldered by the students.

Fees to avoid

There are other types of convenience fees we can avoid to maximize every dollar we get and to help save on purchase cost.

Overdraft fees

Knowing how much you have in your account can actually save you a few dollars on some occasions. When going out to do a scheduled grocery or just a quick errand, it is helpful to know how much you have in the bank if you will use your card. This is because once the payment charged to your account is more than what it has, your bank will charge you overdraft fees.

There are banks that offer overdraft protection and it is best to explore this option to prevent unnecessary add-ons to you your bill. One way to prevent this from happening is to use cash when paying. This lets you know how much you actually have and how much you can actually spend.

Late Fees

Knowing your payment due date is important to avoid late fees. Your due date is when the payments are deemed payable by your lender. This is the date that you should make a payment. Failure to send out a payment can result to late fees being added on  your bill.

One way to address this is to ensure you pay before on time. By knowing your due date, you can easily make advance payments or anticipate that the bill should have come in prior to this date. Another option is to subscribe to auto debit payments. It is convenient and easy as the payments are automatically taken out and sent to your creditors. Just ensure there are  enough funds to cover the transaction.

It is helpful to note as well the difference of due date and grace period. These two co-exist in the finance world and are often misunderstood which has credit score implications. Due date is when the payment should be made but most creditors has a grace period. This allows you to make payments without being assessed late fees. But check with your lenders as some payments received during grace period does not have late fees but are already considered late.

Preventing Additional Fees

There are a couple of things consumers can do to prevent these fees from ever touching their income.

  • Cash is king. This mantra has helped a lot of households deal, manage, reduce and  even pay-off debt. By using cash, you are visually aware of the money you have for purchases. You are able to hold the money and count them with your own hands. This increases our value for money and could help consumers stay away from impulse buys. But this is not to take out credit card in the equation. It still has some benefits and knowing when to use cash or credit is important as well.
  • Budget. Creating a monthly budget for income and expenses should come in handy. This gives you an idea on how much money is coming in and how much you can use for expenses. It can also help consumers track their savings, emergency fund and even retirement chest.
  • List. When going out to buy items, make sure to carry a list of the things you need. The importance of having a list cannot be emphasized enough. One thing is that it reminds you of what you need and prevent you from picking up unecesarry items. Another is that you have a place to out the prices of the items you bought. This is handy when you are budgeting and making forecasts.

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.

Tips To Help Increase Your Credit Score Without Using A Credit Card

woman looking at documentsA lot of people are asking: will opening more credit cards improve my credit score? This is actually a good question. Some people are convinced that this is the only way that you can start building up your credit score.

Here’s the thing. Your credit score is dependent on your credit report. This report holds details about any debt that you have. So if you have not taken any debt yet, then what information can you place on your report? And here’s where it gets more complicated: you need a credit score to be able to take on any debt. Given all of these requirements, how can you hope to build up your credit score?

This is where credit cards are “supposedly” there to help out. However, this is something that people are hesitating. After all, credit card debt put a lot of people under some serious financial trouble. A lot of our youth witnessed how it made the life of their parents and grandparents difficult. They do not want to follow the same footsteps.

Different ways to build your credit ranking without needing a card

Well if you do not want to follow their credit card mistakes, then you don’t have to. You are probably thinking about the next question by now: how will you build up your credit score if you cannot get any type of debt?

Here’s an important truth that you need to know: there are options to get a loan without the need for a credit score. It is limited, but there are other options. Let us list them down for you.

  • Get a federal student loan. If you are young and you are still in school, you may want to start working on your credit score by taking on a student loan. The approval of this loan does not really depend on your credit score. These do not require a credit check. Of course, for it to help you improve your credit standing means you have to know how to deal with student loan debt. That basically means knowing how to pay it back properly. Try not to be late, pay as much as you can – these are the usual tips that you will get so your student loan can help you build up a high score.

  • Try to apply for an installment loan. Sometimes, retailers will allow you to purchase a product and pay for it in installment. The great thing about this option is you are expected to pay for it over a long period of time. That will help you build up your credit score without making the payment too much of a burden. The important thing that creditors and lenders are looking for in your score is how well you can be trusted to pay back what they will allow you to borrow. That is the core purpose of this financial measurement. If you do good in this loan, then you can expect to have a good credit score.

  • Loan money from a credit union. First and foremost, this will require you to be a member. Look for a credit union that you can qualify to join and open an account with them. They operate in the same way as a bank – but instead of being governed by a board of directors, it is managed by the members themselves (more specifically appointed members). When you are finally a member, you can opt to get a small loan to help you work on your credit report. Based on the September 2013 data released by the Credit Union National Association through their site CUNA.org, credit unions have loaned an amount worth $642 billion. They have an asset worth $1.06 trillion. This proves that they are capable of loaning you money. If they decline because you do not have any background on debt, you can opt to get a secured loan. That means your loan is backed by the money in your account. They should be able to give you approval then.

  • Look into peer to peer loans. These are companies that operate online and connect you to private individuals who are willing to lend you money. No bank or financial institution is involved here. Also known as social lending, this is a great option for you to get the loan that will help you build up your score. Since it operated online, the overhead costs will not be as high for the companies managing them. That means they are not compelled to get a high interest rate from you. Although they look into your credit score, it will not cost you a very high score.

  • Request existing companies to file on your credit report. If you have rent, utilities and even phone bills that are recurring every month, you can ask them to file a credit report on your behalf. They are allowed to do so but it will be more of a favor for you than out of obligation. That should help boost your credit score. At least, it will if you had never been late on your payments.

These are some of the options that you have. There are other choices but we do not really recommend them – or we haven’t heard about them yet.

If you really want to use a card to improve your credit report…

In case some of these are not appealing to you, that is alright. You can still use credit cards to help you arrive at the high credit score that you are aiming for. Just make sure you will not commit the biggest credit mistake that you can ever make – and that is to bury yourself in credit card debt.

Just remember that the actual credit card ownership is not how you will get a good score. It is your attitude towards it. You have to know how you will use these cards so you can be viewed as a creditworthy consumer. Here are some tips that we have for you to help ensure that being a cardholder will really benefit your credit report.

Pay your dues on time. The most important thing that you can do to help your credit score go up is to avoid late payments. According to the information provided in MyFICO.com, late payments can affect your score based on how recent, severe or frequent you do them. Basically, they are saying that a recent late payment can put more damage in your score than a frequent late payments in the past. So try not to be late if you really want to boost your score.

Budget every credit card use. To help you avoid late payments, one tip that we have for you is to include your credit card use in your budget plan. That means allocating an amount that you can afford. You have to plan how much you can charge on your card to avoid overusing it. Also, it will help you put aside the money that will allow you to pay for your full balance at the end of every month.

Know how to use your card properly. Lastly, you have to educate yourself on how you can use your credit card properly. That means you have to understand what the interest is and how it can affect the finance charges on your balance. You have to know how the finance charge, late payment fees and other charges can grow your debt significantly. Also, you have to understand how the grace period can keep you from credit card debt.

Understand that credit cards are quite harmless if you know how to use it properly. You can own it, use to have a high credit score and still end up with zero balance every month. It is not about the debt itself that will build up your credit score. It is how you pay for it.

Type Of Credit Cards And How To Make Your Choice

credit cardsThe use of credit cards have gotten a lot of consumers in debt. When the economic crash happened, we all floundered with the difficult problem of getting out of this debt situation. Although we want to get rid of this type of credit, some financial experts advise against it. You may want to live without credit cards but that will make it difficult for you to keep your credit score high. Unless the current financial system changes, your credit score will remain to be an important indication of your creditworthiness. That means you have to take good care of it.

If you think about it, there is no reason to fear debt. In fact, it can be good for you sometimes. Instead of fearing any credit obligation, you just have to be smart about your debts. You don’t have to completely eliminate credit cards because there are ways to use it without you ending up in debt.

Different card accounts that you can get

Among the best practices in using these plastic cards without being in debt is by choosing the right type of card. There are various facts about credit cards and you need to know them one by one to determine the right account that you should use.

Here are the different card accounts that you can choose from.

  • Regular credit card. This is the most common type of card. Sometimes, this is called a standard credit card. It follows the usual rules of giving you a credit limit that you can use for purchases. This limit can change over time. You can maintain a balance as long as it does not go over that credit limit.  When you pay that amount, it frees up more purchasing power. There is a minimum payment that you have to maintain though. If not, you will be imposed with a late penalty fee. You just have to know that every time a balance is carried over to the next billing cycle, it will be imposed with an interest rate. These cards do not offer any reward programs.

  • Premium credit card. This is a card that offers benefits and other purchase incentives to encourage cardholders to use their account often. These rewards can be reward points, travel benefits and cash back rewards. It is harder to qualify for these cards and they usually come with higher charges and fees.

  • Secured credit cards. This type of card requires an initial deposit before it can be used. The deposited amount will be the credit limit of the card. The holder will still be required to make monthly deposits. This is a great card option for those who do not have a good credit report or no credit history.

  • Prepaid cards. Another option for people with bad or no credit history is a prepaid card. This is also known as a debit card. Unlike the secured card that still uses the creditors money when you use it, a prepaid card makes use of your money. These do not really put you in debt so it does nothing to help your credit score.

  • Charge cards. This type of credit card does not have a credit limit but you do have to pay the balance immediately at the end of the month. There are charges and late penalty fees if you fail to pay the full balance.

  • Limited purpose cards. These type of cards can also be called store cards or gas cards. It simply means you can only use it on selected merchant stores or establishments. They are used just like the standard card with the minimum payment requirement and other finance charges.

  • Business cards. These, as the name suggests, is exclusive for company use. This can be in standard or charge card accounts.

Features to consider when choosing a plastic card

When you know what type of credit card you want to avail, you need to compare against different companies. That should be easy to do because there are online websites that can help you compare credit cards against each other. One of the sites that we would like to recommend is NerdWallet.com.

When comparing credit cards, make sure you consider the following features.

  • Credit limit. If you know that you cannot afford to be in debt, choose a card that has a low credit limit to keep the temptation to spend very low. Going beyond this limit will incur charges.

  • APR. This is short for the Annual Percentage Rate or the interest rate on your card. Although you may choose a low interest on your new card, it can still go up as the creditors see fit. When this happens, know that you have every right to refuse the increase. Discuss and negotiate with your credit card company.

  • Grace period. This is the time frame between the date of purchase and the due date on the billing statement where that purchase is included. If you pay within this period, your balance will not be imposed with penalties.

  • Finance charges. It is the amount that will be added to your balance if it is carried over to the next billing cycle. This varies between creditors. Some of them compute it based on one or more billing cycles. Make sure you discuss this with the creditor to understand how it affects your monthly payments.

  • Credit card fees. These are the different charges and penalties that you will be subjected to if you fail to follow the rules of your credit card payments. These includes late penalty fees, annual charges, etc.

  • Rewards programs. Depending on the card that you will use, this is another feature that you have to look into. Make sure it compliments your spending lifestyle. That way, you can maximize the benefits of the program.

On Using New Credit Cards Properly

woman with a laptop and holding a credit cardAfter the financial crisis in 2008, a lot of people swore to live without credit cards. While this decision is respectable, there are implications of not having credit cards. If you think about it, the presence of these cards are not the problem. It is more of how we ended up using and relying on them too much that got us into this mess. But if you can correct those mistakes, you don’t really have to shun credit cards complete from your life. They do have benefits and you can enjoy them all if you stop to learn the basics of using your credit cards properly.

A lot of Millennials have decided not to use credit cards but they end up having problems with their credit score. For someone who is just building their career, this may prove to be useful in helping them get a job. Getting a credit card is not bad, as long as you follow the rules.

What to do with your first credit card

Owning a credit card does not mean you are doomed to be in debt. You can avoid credit card debt if you really want to. Later on, we will discuss how you will do that. Right now, let us detail the things that you have to do when you receive your new credit card.

  • Activate the card. The first step is to activate the credit card that you just received. Usually, the new card has a sticker in front that contains the instructions on how you can accomplish this task. Simply follow the instructions and call the number stated on the sticker. Just follow the prompts that the operator will tell you.

  • Read the fine print. It is important that you read the terms of your new card account and understand it. If there is anything that you cannot understand, call the customer support of the card company and ask until you understand them. Pay close attention to the fees that you have to pay.

  • Keep the terms. Some people throw away the terms after they read it. This is a mistake. You have to file this document so you have a reference point for anything that will crop up with your credit card account.

  • Remember your credit limit and due date. These are two of the important details that will keep most of the fees from being imposed on you. If your credit card balance stays below your credit limit – ideally 30% below, you should be in good shape with your credit. Also, if you pay your dues before the due date, you will not be charged with late penalty fees.

  • Learn about the rewards program on your card. Most credit cards offer rewards to consumers who practice good payment behavior. Sometimes, if you purchase a certain amount at a time, you will get cash back rewards. These are only a few of the things that you can enjoy.

  • Know the details of any promotional rates. In some cases, a new card account is given a low rate on their card. If this is true in your case, you should know when this promo will expire.

  • Setup an online account. This online account will enable you to make online payments. That way, missing your payments can be avoided. You can pay even at night or over the weekend to avoid late penalty rates from applying.

  • Setup up automatic payments. If you cannot setup the online account, use automatic payments to keep yourself from missing your due dates. This means the creditor will get the amount from your account automatically every month.

  • Keep your credit card from being lost. Credit cards are among the popular means to commit identity theft. Make sure you keep your card in a safe place like your wallet. If you do not want to bring it with you all the time, then keep it in a secure place at home.

Important reminders when using your credit card account

There are various techniques to keep your credit card account from incurring too much debt. It is important that you learn them as it is a great way to practice proper financial management habits.

  • Stick to your budget. Never use it if it is not in the budget. This will keep you from overspending.

  • Determine when you will use your credit cards. Stay away from everyday purchases as it can tempt you to spend more than what you intended.

  • Keep your balance below 30% of your credit limit.

  • Pay your dues within the grace period of your billing cycle.

We encourage you to do your research to keep yourself from making a mistake in using your credit card. The Consumer Financial Protection Bureau (consumerfinance.gov) and the Federal Reserve (federalreserve.gov) holds valuable information about credit card rules and regulations. It is important that you know your rights when it comes to credit cards

Here is a video that you can watch to help understand the different fees that you may be subjected to. It is important to know what all these are and how it can affect your credit card balance. It also contains tips that you can use to help avoid these credit card fees.

Can A Credit Card Get You Out Of Debt? Wells Fargo Thinks It Can

woman thinking while holding a credit cardDid you know that you can use your credit card to get out of debt? Apparently, Wells Fargo is trying to sell that idea to boost their credit card business.

Credit cards are still among the highest debt in the country. Although reports continue to say that people are wising up when it comes to the use of these cards, the statistics still display a relatively high debt amount.

This is probably why it is quite difficult to believe that it can ever be used to help you get out of debt. If you use your credit card, you are putting yourself in debt so it does not really make sense at all.

The Wells Fargo idea of a rebate card

However, Wells Fargo seems to think that it could work. According to a news article published by Reuters on August 5, the said bank is trying to appeal to the growing dislike of consumers for debt. It’s quite a clever product because if you think about it, offering to pay off debt by encouraging consumers to use their credit cards is quite contradicting. After all, when you use your card, you are putting yourself through debt. So how does this all play out?

One word: rebate.

That is what Wells Fargo is trying to sell with their Home Rebate Card. Although this card was launched back in 2007, it recently gained attention in light of the still struggling economy that we are all facing. The whole idea for this card is they will offer a rebate of 1% and it will go to the principal payment of your Wells Fargo home loan. The bank revealed that this is the first among the many cards that they will produce and it will all run along the same line. The upcoming cards will specifically help holders pay down their auto loan and other personal loans with every purchase made via this rebate card.

So does that make sense to you? If you think about it, you are actually hitting a couple of birds with one stone here. By using this card:

  1. You are putting a percentage of that amount into your home loan (or whatever loan type your card is tied up with).

  2. You are continuously putting data into your credit report that can help build up your credit score.

  3. You can use your credit card without feeling too much guilt about it.

  4. You will feel more inclined to pay off your credit card balance because there is more than one debt at stake. You want to keep this credit line clear for the reason that it helps you pay your other debts too.

These are some of the things that we have deduced with this marketing strategy. Although the article cannot claim if this arrangement is actually appealing to consumers, the bank claims that their customers had been able to pay around $50 million in home loans since 2007.

Obviously, the whole thing will crash if consumers cannot control their credit card debt. The high interest of this debt can get to be quite a burden so if this arrangement is appealing, you have learn how to use your credit cards wisely. Things like paying down the balance of your credit card within the grace period is a very important habit that you should develop. If you cannot accomplish that, then you may want to think twice before you put yourself through this risky arrangement.

Another way you can find debt relief through credit cards

Other than this rebate card, there are also other ways that you can use your credit card to pay off your debt.

One of them is through balance transfer cards. This is a credit card account that you can avail with an introductory promo of zero percent interest. The promo usually runs during the first 6 to 18 months of the account. During this time, any payment that you will make towards your balance will be towards your principal debt. Of course, you have to transfer your debts to this card first and that requires you to pay a balance transfer fee. It is either a fixed amount or a percentage and should be no more than 3% of the transferred debt.

Here are some tips to help you enjoy the full benefits of balance transfer.

  • Take advantage of the teaser rate during the promo period. If not, you could end up with a higher debt amount after the promo ends.

  • Know the details of the promo. Find out when the promo will expire, how much interest will be imposed on you after the promo and whether the zero interest is applicable only to the transferred balance or also to new purchases.

  • Ask about the repercussions of being late on your payments. Sometimes, creditors will remove the teaser rate if you miss even just one due date.

  • Learn how to curb your credit card spending. This is quite necessary if you really want to keep yourself from incurring more debts.

In truth, your credit card can be a tool to help you solve your debt problem but it has to be coupled with proper spending habits. If you cannot control it, then it may be best to just opt for a different debt solution.

If you want to get help for your credit card debt, view the video after this article.

How To Beat The Credit Card Companies At Their Own Game … Maybe

I doubt that you carry 3 1/2 credit cards. But according to a report I saw recently, this is the national average – that the typical American carries 3.5 credit cards. I’ve also seen a study that the average American has more than $7,000 in credit card debt.

How much are your credit cards costing you?

Have you ever sat down and tried to determine how much your credit cards are costing you? If you were to do this, you might be shocked. For the sake of the example, let’s suppose you have three credit cards. One has a balance of $4000 at 18%. The second has a balance of $7000 at 19%. And the third has a balance of $3500 at 20%. This equates to an average interest rate of 19% and a total balance of $14,500.

To make things simple, let’s look at the average interest and the total balance owed, rather than the three separate cards. We’ll also assume you’d like to get that $14,500 paid off in three years. If so, you’d have a monthly payment of $531.51 and you would end up paying a total of $4634.44 in interest charges on a total balance of $14.500 or nearly 32% of your total debt.

Turning the tables on the credit card companies

If you’re tired of having to pay that much interest on your credit card debts, take heart. You may be able to turn the tables on the credit card companies – but it takes the intestinal fortitude of a cat burglar. The reason for this is because you have to have and be able to successfully manage multiple credit cards, which depending on how disciplined you are could be a problem.

Credit card “islands”

One way to turn the tables on credit card companies is to use what’s called the “island approach.” What this amounts to is using each credit card for different purchases. Different credit cards have different rewards. For example, some give you more points for groceries while others give you more cash back for gasoline. As an example of this, depending on the credit card you might earn 6% cash back on groceries, 3% cash back on certain department stores, 5% on gas purchases and maybe 2% on everything else.

While this might be a good way to use credit cards, it pays to be careful and read the fine print. One card might give you a bonus initially but you might not be able to use it to offset its annual fee. The thing is to not go out and get three cards tomorrow. The strategy over time is to have the best rewards card for each of your major purchases.

Using multiple credit cards can lead to serious pain

These different ways to use credit cards can go bad very quickly. You have to have a good track record and be sure to not over extend yourself. If you have a poor track record with credit and have a history of overextending yourself, then don’t do this. It would be like giving drugs to a drug addict – it just doesn’t work out. As mentioned previously, you need to be very disciplined to use a strategy like this. If you have a history of using credit cards in a self-destructive way, just don’t use them. For that matter, even using them correctly could be dangerous to your financial well-being.

The downside of having multiple credit cards

Did you know that any time you open a new credit card your credit score takes a small hit. Plus, if you keep a card for just a short term and don’t have any long-term cards, this reflects poorly on your credit history. If you think you’ll be buying a new car or getting a mortgage in the next few years, it’s critical that you manage your credit correctly. Problems with a credit card might not show up today but when it comes time to make that major purchase, you could be hit with a slightly higher interest rate. If you were to get a mortgage with an interest rate that’s just a half a point higher because of the way you handled your credit cards, this will literally cost you thousands of dollars in interest charges over the life of the mortgage.

Play the balance transfer credit card game

Another way to turn the tables on credit card companies is by using balance transfers. Virtually every credit card issuer today offers 0% interest balance transfer cards. You could transfer your balances on any high-interest credit cards to a new one and pay no interest on anywhere from 6 to 18 months – depending on the card you choose. The best thing you could do is use this interest-free introductory period to completely pay off your balance. If you’re unable to do that, you might then transfer the balance on the new card to yet another 0% interest card. If you were to do this with three different cards, each of which offered a 12-month 0% introductory interest rate, you could keep from paying any interest at all for 36 months. Of course, all those transfers could have an effect on your credit score.
Tips for handling a credit card sensibly

If your goal is to have a good credit score, you should probably stay away from any of these tactics. Instead, you should make sure you handle your credit card(s) responsibly and here are four tips for doing that.

• Use the card only when you have to. Never think of a credit card as some sort of magic wand you use to pay for those “fun” impulse purchases.

• Monitor how you use the card. If you have multiple cards, put a reminder on your computer or smart phone to make sure you make all of your payments on time. Missing just one payment could throw you into a higher interest rate. The same holds true if you were to exceed your credit limit.

• Pay off your balance(s) every month. If you can do this, you’ll avoid interest charges entirely.

• Keep track of your interest rate. If you accept a card that has a low introductory interest rate it may go through the roof when that introductory period expires. Check your statements every month to make sure you’re getting exactly what you had agreed to. If you see that your interest rate has taken a huge leap upwards, you might try to pay off your balance as quickly as possible or even do a balance transfer to another 0% interest card.

If you would like more information on how to use a credit card wisely, here’s a brief video that could help.

How To Use A Credit Card Responsibly

Credit cardCredit cards can be useful tools or the devil’s playground – depending on whether or not you use them responsibly. For example, a credit card can help you get a “short term” loan to pay for something where you don’t have the necessary cash in hand. Or, if you use it irresponsibly, it can drag you down into a swamp of debt.

Using credit cards responsibly

The first thing you need to do to use a credit card sensibly is to password protect it. Most credit card issuers do not offer password protection as a standard so you will have to request it. Once you password protect the card, it’s virtually impossible for anyone else (think thief) to use it.

Be sure to sigh the card

There’s a little strip on the back of credit cards where you are to sign your name. Make sure you do this immediately after you receive the card. This is essential should you ever lose the card or have it stolen.

Use it only when you have to

A credit card should be thought of as something you use when you have a sudden emergency or as a kind of cushion of support – and not as something you use to finance a big shopping spree. In fact, you should always try to pay cash for the things you buy.

Monitor your usage

It can be surprisingly easy to miss a credit card payment or to not pay off its balance at the end of the month. Either of these can trigger substantial fees. You really need to keep track of all your payments and be sure to budget enough to pay off your balance when it’s due.

Watch your interest rate

Many credit card issuers will tempt you into signing up for their cards with a low “introductory” interest rate that goes sky-high when that promotional rate expires. Be sure to check out the interest every time you receive a statement to make sure you’re paying what you had agreed to. Also – word of warning – with some cards if you miss a payment or exceed your credit limit, you may be automatically assigned a much higher interest rate.

It’s not free

You must always remember that credit cards are not free. The limit on your credit card does not mean you can spend that amount of money free of charge. Whatever you charge on that card must be paid back in full as well as interest. Your bank might increase your limit to encourage you to spend more but don’t do it. Never spend more than you need to.

Accept just what you need

You may be bombarded with credit card offers but this doesn’t mean you should accept all of them. The more credit cards you have, the tougher it will be to keep track of your payment due dates and your balances. While it might be tempting to charge just a little bit on several different cards, this can be a fast way to trouble. In fact, fewer is better and what’s best of all is to have just one card.

Pay off your balance(s) every month

Probably the most responsible way to use a credit card is to pay off your balance every month. If you were to decide for some reason to make only the minimum payment required, you’ve just started on what could be a slippery slide into debt hell. The credit card companies’ main objective is to keep you in debt. In most cases, that minimum payment will be only enough to cover the interest you’ve been charged and will do nothing to reduce your balance. This means if you were to pay only the minimum due every month, you might literally never get out of debt to that credit card company.

Should You Have A Debit Card And Not A Credit Card?

Debit MastercardDid you know that fewer and fewer people are paying cash when they make purchases? A recent study found that instead of paying cash for purchases, more and more consumers are turning to debit cards.

Just 8%

This survey also found that only 8% of the people queried feel that cash will be the payment method of choice by the year 2020, which is down from 14% last year. Plus, 3.4% of consumers turned away from the use of credit cards, which fell by 3.2%.

Why debit cards?

Debit cards have several advantages over paying cash and even over the use of credit cards. Having a debit card eliminates the need to carry a big wad of cash that could be lost or stolen. Using a debit card at check out is much simpler and faster than writing a check. However, like a check, you can often get cash back as well. I routinely get $40 cash back when I go through checkout at my favorite supermarket, which eliminates the need to go to my bank’s ATM or to pay a $2 or $3 fee to use an ATM that’s out of network.

Better control of your finances

The advantage that a debit card has over a credit card is that it makes it easier for you to keep control of your finances. It’s extremely easy to run up a mountain of credit card debt almost without knowing it. You can’t create debt when using a debit card. Since it pulls money directly from your checking account, it’s impossible to spend more than you have in your account – at least without having an overdraft, which could be very expensive.

Accepted everywhere

Debit cards are generally accepted anywhere that accepts Visa or MasterCard. This can be especially helpful if you’re traveling and try to write an out-of-state check.

The downside of debit cards

Unfortunately, debit cards also have their downsides. The fact that you can’t spend more then you have in your checking account can be both good and bad. It can stop you from running up debt but also prevent you from taking advantage of a great sale on that gorgeous side-by-side refrigerator when you don’t have enough money in your checking account to cover its cost. In addition, debit cards do not have the same degree of protection as do credit cards. If you find an erroneous charge on a credit card, your liability is generally limited to $50 or less. And when you dispute the charge, it will not appear on your statement until the issue has been resolved. In comparison, if you find an erroneous charge on a debit card, it could be as many as 60 days before you get your money back.

Which would be best?

Both credit cards and debit cards have their pluses and minuses. If you have a problem controlling your spending, you might choose to have a debit card. On the other hand, if you’re the kind of person who could use a credit card wisely, meaning that you would pay off your balance at the end of each month, a credit card could be a good choice. Of course, the best option of all would be to use a credit card for those every day purchases but to have a credit card for those times when you would want to take advantage of a huge sale on a big-ticket item.

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