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What You Should And Shouldn’t Put On Your Credit Cards

man holding multiple credit cardsThe answer to what you shouldn’t put on your credit cards is fairly simple. You shouldn’t put anything on them that you can’t pay off at the end of the month or, worst case, the following month. When you start carrying balances forward you fall victim to what some people have termed the most powerful force on earth – compounding interest. You could end up paying interest on interest, which can be a slippery slope towards very serious problems.

Your best friends or worst enemies

Credit cards have gotten a bad rap for good reasons. If you use them sensibly they can be good friends. But if you don’t they can become your enemy and you could end up drowning in debt. According to one recent study the average American has more than $6000 in credit card debt and the average for indebted households is $15,863. If you were to owe that $6.000 at 15% and made only the minimum payment ($125) each month it would take you 284 months to clear the debt. Just think. You’d be paying on that $6,000 debt for more than 23 years!

The benefits of credit cards

There’s no doubt about the fact that there are benefits to using credit cards. You can use them to earn rewards points, free miles, cash back or all three. Plus, when you use a credit card it lets you defer payment for a few weeks or even more than a month. Just keep in mind that you will only enjoy these benefits if you pay off your balance in full at the end of the month. Otherwise the interest you’ll pay could actually offset any rewards you earned.

The best things to put on credit cards

What are the best things to put on credit cards? The first is travel. When it comes to booking flights, rental cars, hotels and other vacation costs credit cards can help you accumulate lots of points or airline miles that you could then use towards upgrades, flights or hotel stays. Some even offer benefits beyond this including concierge services, rental car insurance, travel insurance, lost luggage insurance and access to nicer airport lounges. In the event your credit card is stolen or lost while you’re vacationing you can alert the card issuer to dispute and void any fraudulent charges. When you travel internationally there are cards that will give you more favorable exchange rates. On the other hand, you need to make sure that your credit card is not one that tacks on a fee of 3% for foreign transactions.

Electronics and appliances

Credit cards often offer extended warranties, price protection and return protection. This means it’s good to put big-ticket items like laptops, computers, refrigerators, washers and dryers on your credit cards. Make sure you check to see which services are offered by your particular card. Some MasterCard, Discover and Citibank cards come with a “price rewind” service so if the thing you purchased goes on sale the card issuer will reimburse you the difference.

Online purchasesadd to basket

Credit cards generally offer better protection against fraud than debit cards and checks. This could be the reason why 50% of consumers recently surveyed said they liked to pay for their online purchases with a credit card. In fact, most credit cards limit your liability to $50 in the event of fraud or identity theft and some will even waive the $50. If you do use your card to make online purchases don’t do it when using public Wi-Fi or a public computer. Wait until you are in a secure site.

Fragile items

If you buy a new laptop, cell phone or some other fragile item it’s good to put the cost on a credit card as it probably offers extended warranties for purchases and even replacement services. Some cards will double the manufacturer’ s warranty on your purchase for up to a year, which would eliminate the need to buy an extended warranty from the store.

Special categories

Many of today’s credit cards offer multiplier rewards in special categories such as gas, groceries and dining out. These special rewards can be for a month or a quarter. For example, if you were to dine out in May this could double or triple your points in a rewards program or the amount of cash you get back. You’ll be alerted to these promotions several weeks in advance so be sure to activate them.

Automatic payments

When you put automatic payments on a credit card and there’s any kind of a dispute you would have proof of payment. If you need to hold those automatic payments for any reason or for some period of time all you would need to do is call your credit card company to take care of this. As noted above it will also likely credit your account right away for any erroneous charges or fraudulent activity.

It’s a good time for credit cards

Now’s a really good time for credit cards if you have good credit. Credit cards have become very competitive and banks are getting more creative about getting and keeping their customers. For example, rewards programs have gotten more flexible. This is in response to customers’ complaints about the rigid rules regarding blackout dates or specific retail partners. As a result, the latest rewards programs generally allow you to earn and redeem rewards in a more flexible way.

Cash back programs are getting more generous. While the industry standard for cash back is still 1%, savvy card users can earn 2% or more. For example the Citi Double Cash Card allows customers to earn 1% on purchases and another 1% for paying them off.

Shop around

If you’re not happy with your credit cards and their rewards or if you simply want to see what else is available now’s a great time to shop around as introductory offers have also gotten better. As an example of this, cash bonuses for first timers increased 7.45% over last year and offers based on miles increased more than 10%. So if you’ve been using the same card or cards for the past several years go to a site such as CreditCards.com where you can check out cards based on criteria such as low interest, cash back, no annual fee and points. You may find deals that are much, much better than what you’re getting with your current cards.

Tips For Using Your Credit Cards When Traveling Abroad

Tourist couple walking in city with suitecasePlanning a trip abroad this summer or fall? Good for you. Visiting foreign countries, whether in Europe, Central America or the Far East, can be both fun and educational. And let’s not forget out neighbors to the north and south – Canada and Mexico. They’re both great places to visit and Canada comes with an added plus. We all speak the same language.

A big reason to visit Europe

Now is a great time to visit Europe as the euro has lost nearly 25% of its value versus the U.S. dollar. As an example of this let’s take a hotel room in Paris that costs 300 euros. It would have cost you around $415 to stay in that room 12 months ago, when euros cost $1.385. But now that euros cost $1.06 that same room could be yours for just $318.

Regardless of where you intend to vacation there’s always the issue of how do you access your funds. There are several ways to do this and one of the most popular and simplest is to use your credit cards. They’re both a convenient and effective way to pay for things as you travel. Unfortunately, there are some downsides to using credit cards when abroad. It’s important that you know how to use a credit card when outside the US to make sure that you will have both a safe and enjoyable trip. You definitely want to keep your credit card(s) safe and here are some strategies that could help you do just that.

Inform your credit card issuer

First, it’s wise to let your credit card issuer know if you will be traveling outside the U.S. The card companies have security software to avoid fraud. The result of this is that your card could be declined if you use it someplace unusual. This makes it a good idea to let your card company know you will be traveling, where you’ll be going and when you’ll return.

Avoid high service fees

If you use your credit card within the euro zone your purchase transactions will be free. However, if you make an ATM cash withdrawal within the euro zone you may be charged a high service fee. Be sure to check with your credit card issuer on this before you begin traveling. Make sure you remember the different interest rates on your different cards and their fees for converting currencies, if any. And if possible try to use the card the most that has the lowest interest rate.

Check your perks

You may not be aware of this but there are credit cards that come with perks when you’re traveling but the benefits provided by different cards are not the same. These benefits could include concierge services, medical travel insurance benefits, rental car discounts and free breakfasts at hotels. There are also cards that offer rewards or points when you use them to pay for a flight, a hotel stay and more. If you carry more than one credit card try to choose the one that will get you the best rewards. If you find that none of your cards offer these types of rewards you might think about getting a new one just for your trip.

Be safe, not sorry

If you carry multiple credit cards when traveling abroad don’t keep them all in one place. Do this and you run the risk of having them stolen or lost. When you leave your hotel room to go out for sightseeing or dinner, you might leave one of your cards in your hotel room and then take the others with you. Also be sure to watch out for skimming devices when you use your cards at unusual locations. Try to check out your credit report from time to time to make sure you have not fallen victim to ID theft.

Get a prepaid card?

Depending on where you will be traveling you might consider getting a prepaid card. The functionality of these cards is quite similar to those of a debit card but the money is not deducted from your checking account. That way if you run into any kind of problem, your checking account won’t be affected. Instead, you’ll have to deal only with what’s on the card. You should be able to get a prepaid card very easily at your bank.

Magnetic stripe or “Chip and PIN”?

Don’t make the mistake of thinking that your credit card will be accepted wherever you go. In addition to talking with your credit card company you might want to talk with your travel agent or your destination hotel. Restaurants, hotels and gift shops generally accept credit cards with magnetic stripes. However, you may find there are places such as small retail stores and automated kiosks that accept only what are called “chip and PIN” credit cards. If you think this could be the case, and you don’t have one of these cards, you may need to contact your bank to get one before leaving

Why to carry multiple cards

You might use just the one credit card at home but it can be a good idea to carry multiple cards when traveling abroad – preferably ones from different issuers. The reason for this is simple. Not every credit card is accepted globally, meaning that a second credit card could come in very handy. If you were to run into a situation where your main credit card isn’t accepted, you’ll have a backup that might work.

Have a budget and stick to it

When you plan that dream vacation abroad be sure to calculate how much you can afford to spend. While credit cards can be helpful and convenient they can also be way too easy to use. Don’t let yourself get carried away and spend $200 for that jacket that you hadn’t budgeted for or $400 for that really cool camera. Carry your itemized budget with you on your smart phone or pad and check it periodically to make sure you’re staying on track. That way when you get home you’ll have a credit card bill(s) you can live with and not one that will cause you to faint away from shock.

Do’s And Don’ts Of Borrowing Money

man pressing pay later buttonBorrowing money seems to be a practice that we will never stop doing. We know how it almost drowned the average household during the Great Recession. A lot of us have yet to recover fully from what happened. But even if we know that our financial condition is still not as strong as before, we still continue to borrow money because that is how some us can afford to improve our lives. While this can be effective, it has to be approached carefully.

The consumer debt problem of Americans, regardless of what you hear on the news, is far from over. The debt is still as present as ever. In fact, some families may be having difficulties coping with all their debts. If another financial crisis that is similar to the Great Recession happened once more, a lot of households might not be able to recover. It is a scary thought.

According to the data collected in NerdWallet.com, Americans have a total of $11.83 trillion in debt. This is higher than last year by 1.7%. The average mortgage owed per household is $156,333. Student loans are currently at $32,953 while credit card debt is at $15,706 per household. This is a huge load for the average household to carry.

Sure, the highest debt that consumers owe is a home loan – something that is actually helping them increase their personal net worth. But it is still a dangerous debt to have. You need to know the right practices when it comes to borrowing money so you will never have to endanger your financial condition again.

The truth is, debt is not the problem in society. It is how we react to debt that makes it a good or a bad debt. If you know how to manage your credit properly, you do not have to fear that it can ruin you financially.

What to do when you want to borrow money

The key to borrowing money is to do it wisely. Here are 5 things that you need to do in order to be wise with debt.

Do have the right reasons to borrow.

You need to have a valid reason for going into debt. Credit is something that you need to pay back with interest. You want to make that interest worth your while. Having the right reason to be in debt is how you can do that. It is something that you need to think about carefully. If you will borrow money to get the latest gadget even if you do not really need it, you know it is not a good reason to be in debt. But if you will go into debt because you want to put more money into your pocket, that is a better reason. For instance, if you will use credit to upgrade your oven so you can earn extra from baking cookies, it is a great reason to be in debt. If you do it correctly, you might just be able to earn enough so it pays for itself.

Do find the best interest rate.

A big mistake is borrowing money without shopping for the best interest rate. There are a lot of lenders out there. You need to know which of them offers the best rate so you can minimize the amount that you need to pay on the interest. The lower the rate, the better it will be for you. Thanks to the digital age, it is easier to know the existing rates in the financial market. You can visit websites like Bankrate.com to compare rates.

Do check if you can afford the payments.

Borrowing any amount of money is not something that you do on a whim. It is a financial decision that you need to think about carefully. One of your considerations should be how you will pay off the loan. If you are unsure how you will pay off the loan, then do not proceed. At least, put it on hold until you are sure that you know how you can afford to pay back what you will borrow.

Do understand the fine print.

Nobody reads the fine print. Really. The small prints are boring and some of the words are hard to understand. While that is unfortunate, you need to read the fine print. There is no shortcut about it. Actually, you need to do more than just read it. You need to understand it. If there is something that you do not understand, ask. You might be signing up for something that you are not ready to deal with.

Do save while paying off debt.

Lastly, you need to keep on saving even when you are in debt. So if you are revising your budget so you can accommodate your new debt, make sure you leave room for savings. We all know what having an emergency fund will help eliminate the need for unnecessary debt. Using credit to buy something that will improve your financial situation is a good idea but it is a better idea to buy it in cash. That way, the return of that investment is greater. So always leave room for savings. You will never know when you will need that fund in the future.

What not to do when you are borrowing cash

If there are rules that you need to do when you are borrowing money, there are also rules when it comes to what you should not do. Here are 5 things that you need to remember NOT to do when you are asking for a loan.

Don’t borrow if you still have other debts.

Before you borrow money, you usually look at your income to see if you can afford paying for it. While that is logical, there is one more thing that you need to look into: how much debt do you still owe? If you still have a lot of student loans, do you really think it is wise to borrow money for a new car? You may want to find debt relief for some of your credit accounts before you add more credit to your name.

Don’t make borrowing your financial solution.

Believe it or not, some people use debt as a way out of a difficult financial situation. This is a desperate move that you need to avoid. If you use debt for emergency situation, that is a very bad idea. This is why one of our to-do rules is to keep on saving even as you are in debt. It is better for you to have an emergency fund so you can avoid borrowing money just to get yourself out of a financial problem. Sometimes, the problems will make your desperate and unable to make wise decisions when it comes to debt.

Don’t forget to pay on time.

Paying on time is one of the important rules of borrowing money. If you cannot pay on time, you will be charged with late fees. Not only that, if you let it go for a long time, your credit behavior will be reported to the three major credit bureaus. That can compromise your credit score and jeopardize future financial transactions. So if you can help it, just pay your dues on time.

Don’t fall prey to bad lenders.

When you are choosing a loan, you are always advised to seek out the ones with the best terms (e.g. low interest rates, etc). Apart from that, you also have to be careful where you will borrow money. There are some lenders offering rates and terms that are too good to be true. Sometimes, it is too good to be true so you need to be very careful. It is best to check what the law says about your rights as a borrower. According to an article published on ConsumerFinance.gov, the Office of Fair Lending and Equal Opportunity is working hard to identify discriminating practices in the financial markets. You may want to check out their website for more information about borrowing money.

Don’t keep borrowing a secret.

On a last note, you need to avoid keeping your debt a secret – especially when you are married or in a serious relationship. Talk to someone about your debt because that can help increase your sense of responsibility about that debt. If someone knows about it, then they are bound to check if you are paying it off. They could be a great adviser when it comes to financial decisions.

To know more about borrowing money, here is a video from Money Talks News with tips on how you can be smart about it.

How To Deal With The Credit Card Debt Of A Loved One

couple discussing financesBelieve it or not, credit card debt is one of the reasons why some relationships do not last. It is a common financial problem that people keep from their loved one. It is understandable why some people will choose to end the relationship after finding out that their significant other is burdened with debt. Nobody wants to be burdened with the debt of someone else – especially if you had been very careful in taking care of your personal finances.

But sometimes, this is not an option for all couples. Some are already too deep into the relationship to back out after uncovering the money mistakes of a loved one. They are either already married, about to get married or are just too in love to let this financial problem get in between them. It is actually sweet that you want to stick to the relationship despite the credit card debt. However, it is not as easy as you may think it will be. Love is not enough to help you get through this together. If you want to keep your money problems from driving the two of you apart, you need to work on this debt as soon as you can.

The truth is, this scenario is quite common in our society. According to a survey done and published in Nerdwallet.com, 35% of adults admitted to bringing credit card debt into a relationship. Most of them are revealed to be men – 42%. Only 29% of the women bring this debt into their personal relationships. The same survey revealed that 25% of the couples reported that the credit card balance of one partner has a negative impact on their relationship. It can be assumed that the couple may have a hard time doing things as planned because of the financial limitations brought about by having an unpaid credit card balance.

Although you are part of the statistic of relationships with one member having this type of debt, it does not mean you should give up easily. If you believe that your love is worth fighting for, go ahead and do something about the debt of your partner. But before you can work on the problem, you need to understand what causes the credit card debt to grow in the first place.

How do credit card balances grow?

According to a blog article published on WSJ.com, credit card debt is continually rising – with an increase of 11.57% annual rate. This is actually the second biggest rise when it comes to revolving credit – at least since the Great Recession happened.

Obviously, you can only solve your problem with credit cards by paying it off. But to make your debt solution last, you need to know what caused your significant other to fall into debt.

For one, he or she is clearly not a smart credit card user. But you need to find out why they are that way. There are a couple of reasons why someone could amass such a huge amount of debt.

  • They are victims of identity theft. Sometimes, it is just a case of bad things happening to good people. Identity theft does not exempt anyone. If your significant other was too late in realizing that they are victims of identity theft, they will most likely be the one to shoulder the credit card payments. If this is the case of your partner, they deserve all the support and help that they can get from you. After all, their debt is not their doing. However, they need to boost their efforts when it comes to credit monitoring to avoid becoming a victim of identity theft once more.
  • They do not have an emergency fund. Another reason why some people have a lot of credit card debt is because they failed to prepare for that one emergency that cost them a lot of money. Not having an emergency fund is one way for consumers to end up with credit card debt. While this may be the fault of your partner, it is not as bad as you would think. All you have to do is to encourage your partner to save. That way, they will no longer be placed in a position wherein they will have to borrow money in order to get out of an unexpected situation.
  • They have other priority debts. There are also times when your partner simply has too much debt that they are running out of cash. They have to prioritize other debts like student loans and that leaves them without the cash to spend on their basic necessities. The solution is to use their credit card in order to buy what they need. Since the cash is running low, they fail to pay their balance in full at the end of each month.
  • They are impulsive spenders. The last reason why your partner may be dealing with a high credit card balance is because they are impulsive spenders. If this is the reason, then you know that you have a lot of work before you. Being an impulsive spender is not something that you can change overnight. You have to break a lot of habits – which is not an easy thing to do. There may be times when you will get into arguments with your significant other.

There is an interesting article published on Forbes.com that gave an interesting take when it comes to credit card debt. The author said that a lot of people admit that they cannot even remember what they bought. This means they got into debt because of small purchases and not a big one. Those extra purchases that are too big for their cash budget accumulated over time are the culprit.

The convenience that comes with using credit cards and the high interest rate makes it a dangerous purchasing tool to use. It is very easy to overuse it and fail to pay it all off when the billing arrives.

What can you do to help a loved one deal with credit card problems?

When your loved one is clearly struggling with credit card debt, it is only right that you try to see how you can help them out. According to a study done by MagnifyMoney.com, 42.4% of Americans have a balance on their credit cards. The same study revealed that the average balance of the survey participants was $10,902. This is a high amount to owe on high interest credit cards. They also revealed that more than 75% of credit card holders pay an interest rate above the average of 15%. That means they have been deemed high risk credit holders – or at least, higher than the average. The calculations of the article indicated that if a credit card holder has an 18% interest rate, they are bound to pay at least $1,707 on interest.

You want to avoid this because you are wasting that much money on your credit card debt. You need to focus on erasing debt so you can be free from the burden of too much credit payments.

It might seem unfair for you to have this burden when you clearly had no hand in accumulating that debt. But if you really love them, you cannot just stay in the sidelines and watch them suffer. Here are four things that you can do to help.

  • Communicate. Open the lines of communication. Do not make them feel ashamed of their debt. As they all say, you need to hate the sin and not the sinner. Show your support so your significant other can overcome this financial difficulty. Assure them that they can talk to you about their credit card struggles anytime.
  • Be firm but forgiving. There are times when dealing with credit card debt is like battling addiction – especially when your significant other is an impulsive spender. You need to set clear rules and be firm in implementing them. You need to be forgiving but always be firm so your partner will make an effort to change their ways.
  • Share the burden. If you can, you may want to share the burden. You should never run from credit card debt, even if it is not yours and it is owed by your partner. You need to stand by them and try to carry some of the burden. You can literally help them pay off the debt by using your own money. Or you can support them by helping them save their money. There are many things that you can do – even if it is just a simple reminder of their monthly payments.
  • Live by example. You should also live by example. If your partner is trying very hard to curb their spending so they have enough money to pay off their credit card debt, you should not live a luxurious lifestyle. If they have to live a frugal life, you may want to live the same beside them. For married couples, this is easy. For partners living in separate homes, having the same lifestyle is not necessary. However, it will help encourage your significant other to alter their lifestyle in order to save enough to pay off their credit card debt once and for all.

To know more about credit card debt, here is a video discussing the different causes that will land you with too much balance on your card. Learn about them so you can try to avoid these mistakes.

What You Need To Know About The New Credit Cards Coming Out

credit card chipDid you know that avoiding debt is not the only problem that you need to worry about when using credit cards? Another threat that you need to consider is identity theft.

Thanks to the digital age, all our information is accessible online. Hackers are able to steal our information and use it to steal from us. Once they have our information, they can use it to apply for credit and acquire stuff using it. We end up paying for all the credit purchases made by these thieves because we cannot prove that these were unauthorized transactions.

According to the press release published on FTC.gov, identity theft is the leading complaint that they got from consumers in 2014. It is 13% of the overall complaint that they got. The question is, how does identity theft happen? How exactly can thieves get our information?

One way is for hackers to copy your details through the magnetic strip of your credit card. If you notice, the current credit cards that you own have a magnetic strip on it. This contains vital information about you and allows you to purchase on credit. When thieves get this information, they can buy on credit using your data. That means all their purchases will be credited to your account and you will be left to pay for all of them.

For the past few years, the government had been looking for ways to counter these identity thieves. One of their resolutions is to protect the information taken from credit cards. There is a widespread action among financial institutions and credit card companies to replace the magnetic strip credit card and distribute cards with computer chips in them.

Features of the new credit card

An article published on USAToday.com explained a lot of things about these new credit cards. Apparently, banks in the US are already tired of paying consumers whenever it is proven that they have become victims of identity fraud. After all, it is their loss when consumers do not pay for their debts when it is proven that the transaction was unauthorized.

The solution to the problem, or at least they believe will help lower the cases of identity theft, is to change all magnetic strip cards into those with computer chips. According to the article, the magnetic strip cards are outdated anyway. A lot of countries are already using this computer chip cards and it has proven to be more effective in keeping the data of the consumers safe whenever they use their credit cards.

Here are important facts about the computer chip credit cards as taken from the USA Today article.

  • The switch to the new credit card started last year and will continue to happen within the year. This switch will not just include credit cards but also debit cards. This is a massive switch because a lot of merchants all over the country will have to switch their equipment to be able to read these new cards.
  • The computer chip equipped credit card has a metal chip embedded in front – this placement is necessary to make the information stored in it safer. The new cards also have a magnetic strip in case a merchant does not have the new equipment that will enable them to read the chip.
  • A deadline has been set on October 1, 2015 for merchants to update their equipment to allow reading of computer chips. After that, there will be a liability shift that will happen wherein the merchants will be responsible in case the consumer becomes a victim of identity theft because of the magnetic strip cards.
  • The computer chip assigns a code that is unique to every transaction that you will make. This code, even if stolen cannot be reused – which makes it pretty much useless to thieves intercepting your data during transactions.
  • Computer chips can be duplicated but it is harder to do – at least if compared to magnetic strips. The chip is actually used to prevent the duplication of credit cards.
  • When making a purchase, the new credit card will be inserted into a machine – similar to those found on ATMs. This is how the information is read.
  • At the moment, the chip will be accompanied by a signature from the consumer for added security. In the future, it is expected that the chip will accompanied by a PIN instead. It is believed that signatures are not really checked anyway so PINs should be more authentic.

Once you have this new credit card, you may able to have less fear in making purchases with it. This new card can help you enjoy a better future – at least, this is true if you can avoid too much credit card debt.

Tips to protect your credit card from identity theft

Obviously, credit cards are a staple in our wallets. The convenience that it brings cannot be replaced by cash. However, you need to make sure that you can further protect it from identity theft.

According to an article published on Time.com, almost 1 billion records were leaked in 2014. This is not primarily caused by credit cards. Some of the data were taken from the records of merchants, retail companies, and even the government archives. You are in danger of identity theft from all of these portals. While being pessimistic will not solve your problems, you are encouraged to be very vigilant when it comes to your personal data. Be very careful whenever you divulge your information – especially when it is being done online.

Fortunately, there are several things that you can do in order to keep your data from being taken by malicious individuals. Here are some tips that you may want to follow in order to protect yourself.

  • Do not just give your credit card to anyone. When you are in a store or restaurant, be conscious of the people asking for your credit card. As much as possible, keep your eyes on your card even as it is brought to the cashier. Not only that, you need to ensure that the person asking for your card is an employee of the establishment.
  • Be careful of the data you post online. The rise of identity theft incidents happened because of the growth of the digital age. People post just about anything online. Be very careful when you do this. Some thieves can use seemingly innocent posts against you. Do not make it easy for them to figure out your regular schedule. Once they know your activities, it will be very easy for them to steal from you. Do not give them that window of opportunity. Make your profiles and posts private and be wary of friend invites from people you do not know.
  • Monitor your credit report. One of the effective ways to be vigilant when it comes to identity theft is to keep a close eye on your credit report. You need to check it every now and then to see if there are entries there about transactions that you did not authorize. When you find these unauthorized transactions, you need to dispute them immediately so they can be investigated and removed if proven to be a result of identity theft.

What you need to know about identity theft is that you can prevent it if you practice vigilance and credit management. When you are careful about your own information and transactions, you can protect yourself from becoming a victim of any form of theft.

Although the new credit cards will help protect you from identity theft, it will not protect you from debt. This is a different problem that you need to deal with. To help you avoid credit card debt, here is a video that shows the common causes of this type of debt.

The Two Things You Really, Really Don’t Want To Do With A Credit Card

man holding out credit cardsCredit cards when used sensibly can be very helpful. There are safer than carrying a big wad of cash and most will protect you from identity theft or if your card is stolen. They do this by limiting your liability to $50 – and in some cases will even waive that. Of course, you’re expected to report suspicious transactions as quickly as you can.

How a credit card can help

A credit card can be very helpful in building a credit history. Again, this assumes that you use it sensibly. But when you put a few charges on a credit card and then pay off your balance at the end of the month this will help you create a good credit history that tells potential lenders you could be trusted. This will also save you money, as you should be able to get a mortgage or personal loan at a lower interest rate.

If you choose the right credit card you could earn some great rewards. The credit card business is very competitive these days so why not take advantage of it? Depending on the card you choose you could earn cash back, points or airline travel miles.

Last but certainly not least using a credit card for your everyday purchases can help you track your spending and see those areas where you could make cuts and save money you could tuck away into savings or invest.

What you really don’t want to do

Using a credit card to make everyday purchases can be a really good thing – if you pay off your balance at the end of the month. However, if you make just the minimum payment and carry a balance forward into the next month you may quickly slide into trouble. This is due to a little thing called compounding interest. What this means is any interest charges are added to your principal (which is the amount you originally charged) so that your debt grows exponentially.

For example, if you have a balance of $100 on a credit card and it accrues 10% in interest every month, you will be charged $10 the first month. Then with compounding, that $10 will be added to your original debt so now you owe $110. The next or second month you will again be charged that 10% interest but this will be $11 meaning that you now owe $121. And on and on. When you understand this you will understand why some people end up paying more than $1200 in interest on a $5000 credit card debt.

credit card trapWhat you really, really don’t want to do

While you don’t want to fall into clutches `of compound interest there is something else you really, really don’t want to do and that’s to take cash advances. The credit card companies generally have very high fees and interest rates on cash advances. Plus they usually start charging interest immediately. This makes it unlike purchases you make with your credit card, which gives you an interest-free grace period that could be as many as 30 days based on your billing cycle. In fact, if you were to make a purchase the day after your billing cycle you might actually have closer to 60 days interest-free.

Sky-high interest

If you take a cash advance on a credit card with a 12% interest rate, don’t think for one minute that you’ll be charged 12% on it. What’s more likely is that your interest rate will be a sky-high 24% or twice as much as the interest rate on your purchases. In addition, cash advances often have a fee, which is usually either 5% of the advance or $10 whichever is higher. What this translates into is that if you were to get a $1000 cash advance it would cost you an additional $69 even if you repaid it in full within 30 days.

Cash advances you won’t see coming

It’s also possible that you could have a transaction that’s treated as a cash advance without you knowing it. This is because there are transactions that are treated as cash advances if you pay them with a credit card. Included in this group are money orders, wire transfers, legal gambling purchases and bail bonds.

Sometimes it’s the best option

While a cash advance can be extremely costly it can be okay to get one if it comes down to a choice between a cash advance and getting a payday loan. This is because there are online payday lenders that charge an annual percentage rate of, wait, take a deep breath, of as much as 652%. If you have an emergency and need just a couple of hundred dollars to hold you over for a few days until your next payday then a cash advance might be the best of several different bad alternatives.

The worst cards

There are several credit cards that charge even higher interest rates than the 24% quoted above. For example, First Premier Bank’s interest rate is 36% for a cash advance on its card. Next in line was the BP Visa and the Texaco Visa, which both charge 29.99%. And you might not want to take a cash advance on ExxonMobil’s SmartCard as it has an interest rate of 29.95% making it the fourth highest APR for cash advances.

If you’re having a problem with your credit card debt

Did you know that the average American now carries more than $6000 in credit card debt? If you have fallen into the trap of compounding interest and find that you owe this much or even more there are several ways to handle the problem. For example, you might get a debt consolidation loan with a lower interest rate than what you’re currently paying. Or you could get a debt management plan from a consumer credit counseling agency. Debt settlement might even be an option. However, what many Americans are now doing is driving for Lyft or Uber to earn extra money to pay off their debts. Driving for one of these companies can generate $500 or more a week and it’s something you can do whenever you like. There are no set hours and no one watching over your shoulder to make sure you do a job. All that’s required is to register with one of these two companies and have a car and a smart phone. Then just start driving people around and earning money. It’s really that simple and could even be fun!

Credit Lessons Your Parents Forgot To Teach You

choosing between good and bad creditDid your parents have two “little talks” with you? If so, the first undoubtedly had to do with, well, we don’t have to tell you what it was about. But if you were lucky there was a second “little talk” about personal finance. Your parents might have warned you about not creating debt, about saving and investing and maybe even about the importance of budgeting. But even that talk about personal finance probably did not include some very important lessons about credit. Or maybe they did talk to you about credit but you just sort of tuned them out because it was boring or you didn’t feel it was really something you needed to know. In either event, here are six credit lessons that your parents probably forgot to teach you that you really should know.

Just a half-a-percentage interest rate reduction does matter

Your parents might not have told you this but when it comes opening a line of credit it’s possible to negotiate a better interest rate. You might not get exactly what you ask for but you and your lender could end up with an interest rate lower than what you were originally offered. This is a case where just a .5% interest rate reduction can actually make a difference. As an example of this, if you applied for a $1000 loan at 17% but then negotiated this down to 16.5%, you would save five dollars a month. That’s a beer, a latte or in 12 months, a pair of shoes.

Paying interest can be really, really painful

It’s just not fun having to make monthly credit card payments. But it becomes much more painful when you add interest to your balance. Most credit cards today have an interest rate above 12%. If you make just the minimum payment or, worse yet, carry balances forward from month-to-month it can get really painful. As an example of this if you owed $5000 on a credit card at 15% and paid just the minimum each month it will take you 56 months to pay off that $5000 and will cost $1974 in interest.

Using a credit card can protect you from fraud

If you are asked to name the safest way to make a purchase and your choices were credit, cash or debit what would be your answer? The odds are that you would say a debit card. But you’d be wrong. The best way to protect yourself from fraud is by using a credit card to make your purchases. The reason for this is if you became the victim of identity theft most credit card issuers will remove those fraudulent purchases as soon as you alert them to suspicious activities. Plus, they generally limit your liability to $50. If you use a debit card then filing a claim could be much more complicated and it might be two weeks or more before you’re reimbursed for those fraudulent purchases.

man jumping with a chart behind himGood credit doesn’t just happen

The harsh truth is that good credit doesn’t build itself. You need to be proactive. Getting and keeping a good credit score can save you a lot of money over the long run. If you have a good credit score you can lock down lower interest rates and make larger purchases such as taking out a mortgage. If your goal is to build good credit, you should start soon and start small. Make a few small purchases with your credit card and then immediately pay for them. When you make small purchases and pay them off immediately this will help you build good credit habits early on as well as a good credit score.

An even better idea is to start with a secured card. If you’re not familiar with this type of card it’s where you deposit money with a bank – usually $300 or $500 – and then use the card to make purchases until your balance reaches zero or near zero. At that point if you want to keep using the card you will need to deposit more money. There are two good things about a secured card. First, it prevents you from creating debt. Second, how you use the card will be reported to the three credit reporting bureaus and, assuming you use it sensibly this will help you build a good credit score.

Your credit limits aren’t just suggestions

When you got that first credit card and saw it had a limit of $2500 that was pretty exciting. Just imagine! You instantly had $2500 at your disposal, right? Well, yes and no. Just because you have a credit limit of $2500 doesn’t mean you should use it. Most financial experts say that you should keep your credit utilization or how much of your limit you’ve used below 30%. This means is that you should use only 30% of that $2500 or $1500 total. The reason for this is because your credit utilization counts for approximately 30% of your credit score. If your credit utilization were 40% or even 50%, this would definitely ding your credit score. Do the math. If you find that your credit utilization is above that magic 30% you need to either get to work paying down your balance or open another credit card so that your credit limit would go up accordingly.

Your credit score will ultimately depend on your financial philosophy

Whether you have a good or bad credit score will ultimately depend on your financial philosophy or whether you’re an ant or a grasshopper. If your approach to finances is that of an ant where you’re saving money, paying off your balances on time every month and have an emergency fund, you’ll ultimately have a very good credit score. It may take a while but it will happen. On the other hand, if you’re more of a grasshopper – if you spend money as fast as it comes in or if your approach to debt is that of Scarlett O’Hara and “I’ll worry about that tomorrow” – it’s absolutely certain that you will end up with a poor or bad credit score. And a bad credit score will cost you money in the form of higher interest rates, higher insurance premiums and might even prevent you from renting an apartment or house.

5 Times When It’s Okay To Borrow Money

If you’ve spent more than 10 minutes reading about personal finance you know it’s a really bad idea to borrow money. Almost the first thing every book on personal finance preaches is “don’t borrow money”, “don’t get in debt,” “shun debt like the plague“ etc. and etc. And in most cases this is good advice. When you borrow money you’re really borrowing from a future you. You get to use the money now but it won’t seem like such a good idea several years from now when you’re still trying to repay it. Debt is basically a financial parasite that sucks money out of your future earnings leaving you with less to save or spend.

couple discussing finances

Couple calculating their budget

But the fact is that there are times when it’s okay to borrow money. Of course, you should have a plan for repaying it.

#1. When you can’t pay big medical bills

No matter how diligently you plan your finances a medical emergency can cause them to spiral out of control. The three credit bureaus recently changed the way they handle medical bills, as they now will give you up to 180 days to address them before they add them to your credit reports. If you simply can’t pay those medical bills and can’t work out some kind of a repayment plan with your healthcare provider then the 180 days would at least give you enough time to get a personal loan and pay them off. Of course, you would want to try to find a loan that has a low interest rate. Borrowing money might not be an optimal solution to those medical bills but it would be much better than seeing them go on your credit reports as unpaid. You’ll want to make the payments on that personal loan on time and in full because if you don’t your credit score will be seriously damaged.

#2. When you can’t afford your moving costs

Moving can be one of the most stressful events in your life. This is especially true when you consider the expenses associated with a move. In addition to paying a mover there will be issues having to do with boxes, storage, transportation and those little unexpected costs that always pop up. If you’re making an intrastate move and you total all the costs associated with it you can easily end up spending $1000 to $1100. And if you’re moving interstate the cost might be as high as $5000. If you take out a personal loan to cover your moving costs it will save you money versus putting them on a credit card. The reason for this is because a personal loan will have a much lower interest cost than your credit cards. Get out your most recent credit card statement, check the interest rate and you may find that it’s 15% or even higher. In comparison, you should be able to get a small personal loan that has a lower interest rate and simple interest – so that the interest is calculated only on the principal amount.

#3. When you’re saving money but carrying debt

If you’re carrying debt but trying to save money at the same time it’s a losing proposition. One website recently published a list of the 10 best savings accounts for 2015 and the best one offered an APR of 1.10%. Now compare that with what you’re paying on your credit card debts, which probably averages 15% or more. This suggests that a better solution would be to take out a personal loan and use the money to pay off those credit card debts. Then, at least for the time being, you should quit worrying about saving money and focus instead on paying off that personal loan. Get it paid off in a year or 18 months and you would then have a lot more money to stick away in a savings account or to invest.

smartphone anxiety#4. When you can’t pay a car repair bill

It’s tough to earn a living if you don’t have access to an automobile that you can rely on. If you‘ve had a car accident that wasn’t covered by your insurance or a major repair bill that you didn’t expect your access to reliable transportation could be seriously affected. If you’re your unable to work out an affordable repayment plan with the car repair shop then a better option could be to take out a personal loan to pay for the work. Again, this could be a much better option than putting the repair bill on a credit card because that loan should have a lower interest rate than your credit card. In addition, when you charge things on a credit card and can’t pay off the balance at the end of the month, you become the victim of compounding interest. This is where the credit card companies make the real money because you’re paying interest on interest. In comparison, most personal loans are based on simple interest, which is a much better deal.

#5. When you want to make home improvements but don’t have enough equity

How much equity do you have in your home? If you’re not familiar with equity it’s the difference between what your home is worth and what you owe on your mortgage. As an example of this, if your house were worth $100,000 but you owed only $80,000 on your mortgage, you would have $20,000 in equity. If this were the case you could take out a home equity loan or homeowner equity line of credit to finance the home improvements you would like to make. For example, you might want to update your kitchen, add outdoor features or replace your roof. Taking out a personal loan to finance these additions or renovations could be a good idea because they should add value to your home.

If you must use a credit care

If you find it necessary to put medical bills, an interstate move or a car repair bill on a credit card the critical thing is to not make just the minimum payment as this is where compounding interest will cost you big money … as explained in this video.

A tool for managing your finances

A personal loan when used for the right reasons that has a low interest rate and fair terms can actually be a great tool that can help you manage your personal finances. However, it’s important to think things through carefully and maybe even sit down with a lender to discus your options before taking out a personal loan. And it’s critical that you get a loan with payments you can afford and then make those payments on time every time.

Credit Card Help For The Terminally Disorganized

smartphone anxietyDo your organization skills leave much to be desired? Are your credit card bills scattered all over the place? Are you constantly tearing at your hair wondering when your next payment is due or if you just missed a payment?

You can relax a bit because here is tips that can help you better manage your credit cards.

Make a list

If you really want to do a better job of managing your credit cards the first thing you need to do is make a list of them. The easiest way to do this is by using a spreadsheet program like Excel or Google Sheets (which is free). You’ll want to have a column for the name of your credit cards and columns for their balances, minimum pavements, interest rates and due dates. This should take only a few minutes — even if you have to do it with a piece of paper and pencil.

There, that wasn’t so hard was it?

Be on time

If you’re trying to manage multiple credit cards it’s critical that you have that list you’ve made so that you can be sure to make your payments on time. Being late on a credit card payment or missing a payment altogether can have a seriously bad effect on your credit score. Only FICO, the credit scoring company used by the overwhelming majority of lenders, knows for sure how much a late payment will damage your credit score but it is believed that it will reduce it by around 50 points. Be late with two payments and your score could drop by as many as 100 points, which could drop you from having good credit down to poor credit.

Create reminders

Now that you know your credit card due dates you should set up reminders. Most of the credit card issuing companies will send you email or text alerts to help make sure you make your payments on time. But instead of relying on them you might want to create your own notification system by setting up reminders on your computer’s or smart phone’s calendar. Just open your calendar app, go to the date a few days before a payment is due, set up the event as something like “pay Visa,” and then make it reoccurring every month.

Use auto pay

Credit card issuers usually have an automatic pay feature that you could use to ensure you make your payments on time. In most cases you have the option of choosing the minimum payment, the full statement balance or some other amount. Of course, it’s best to pay the full balance every month, which would keep you from piling up debt. Alternately, your bank probably offers online banking where you could set up your payments. Many people prefer this because it allows them to keep control of their payments as on some months they might want to pay the full balance while on others they might choose to make only the minimum payment.

Have your due dates changed

If you have three, five or more credit cards you have three, five or more due dates. One trick for making sure you pay your credit card bills on time is to call the issuing companies and have your due dates changed so that they all fall on the same day. Most credit card issuers will do this if you just ask. You might pick a date that’s three or four days after you get paid. It’s also a good idea to make sure that one due date doesn’t fall too close to big payments such as your mortgage or rent.

credit cardsDo a balance transfer

If you want to make things really simple you could transfer the balances on those multiple credit cards to a new one – that offers a better interest rate. There are also a number of 0% interest balance transfer cards available. If you could qualify for one of these you should definitely transfer the balances on all of your credit cards to it. You would then have just one payment due date, which would really simplify the task of making your payment on time. Plus, you would have anywhere from six to 18 months interest-free so that all of your payments would go towards reducing your balance. If you could double or even triple up on your monthly payments you might actually be debt-free before your promotional period ends.

Optimize your rewards

If you’re managing multiple credit cards with multiple rewards you might find it hard to keep track of the rewards categories offered by each of them. Again you should create a spreadsheet to keep all the information in one place. On this spreadsheet you will want to list the name of each card and the rewards it offers. You could then save the spreadsheet to your phone via Google Drive, Evernote or Dropbox so you could check the rewards before you use a card or make a payment. Another neat trick is to set up your wallet to be successful. This means organizing your credit cards by how frequently you use them. As an example of this, you could keep the card used for everyday purchases in your wallet at the top and then leave at home that airline rewards card you use only when booking flights or that card that offers the poorest rewards.

Know when enough is enough

If you use the tips you’ve just read in this article you should be able to do a better job of managing multiple credit cards and without running into trouble. But it’s important to know when it’s time to know enough is enough. If you find yourself tempted to add another card because of the juicy rewards it offers but you feel you couldn’t do it without losing control just listen to your gut instincts. No matter how generous that rewards program might be or how big the sign up bonus, it’s not worth it if you would end up being saddled with more credit card debt or constantly hit with late fees.

3 1/2 Circumstances When It’s Okay To Take On Debt

Inductive reasoning is when you try to determine the truth of something by reasoning from the specific to the general. An example of this in the case of debt would be:

I have this debt, which is bad.
Therefore, all debt is bad

woman with percentage signs and credit cardThe problem with inductive reasoning is that it’s impossible to prove its conclusions are true. And this is certainly true in the case of debt. Despite what you may have been told many times over the years not all debt is bad. In fact, most financial experts today recognize the fact that there can be good debt as well as bad debt.

Bad debt

Bad debt is debt you use to finance things you consume. The biggest example of bad debt is probably credit card debt because of the way most people use credit cards, which is typically to buy clothing, furniture, a cell phone or to pay for a night out on the town.

Even though we may not want to admit it, using debt to pay for a vacation is also bad debt. A vacation might improve your health and emotional outlook and help you be more productive when you get back but vacations never appreciate in value. When you use debt to finance a vacation you’re basically borrowing from tomorrow in order to pay for today’s fun. Once the fun is over all you really have left are some happy memories and a lot of debt. This is especially true if you use debt to finance a vacation you can’t afford.

What is good debt?

What’s good debt? Many financial experts now regard debt you use as an “investment” as good debt. How, you might ask, can any debt be considered an investment? It can be if you use it to buy something that will increase in value over the years and contribute to your general financial health. Here are three concrete examples of debt that most experts would agree is good debt.

Buying a home

Getting a mortgage to buy a house is considered to be good debt because housing always increases in value over the long run. As an example of this where we live houses have increased an average of 12% just in the past year. If you lived here and bought a house a year ago for $200,000 home, it would now be worth at least $224,000 and would therefore be a very good investment. In addition, owning your home can contribute to your emotional health because for most people owning their homes gives them a heightened feeling of security and happiness. Of course, it’s important to never take out a mortgage that you can’t afford, as this would turn that good debt into bad debt.

Going back to schoolDiploma with money

A second example of good debt is to finance your education if you decide to go back to school to further your career. In fact, this could be a very good debt because it’s likely you would be able to see a nice return on the investment. As an example of this let’s suppose you were to spend $20,000 to get an MBA, which then enabled you to get a job earning $10,000 more a year. You would have that MBA “paid for” in just two years and by year three you would be clearing a “profit” of $10,000 a year. Of course, just as with using debt to buy a home it’s important that you don’t run up too much student loan debt. Studies have shown that when people end up owing $50,000 or more on student loans it’s because they used too much of the money to finance expensive vacations or for their everyday living expenses.

Going into business for yourself

A third situation where debt can be considered good is if you’re starting a business. According to the website Nerd Wallet two thirds of today’s millionaires are entrepreneurs – meaning that they started their own businesses. If you’re starting a business and need to purchase equipment or lease space you could need an SBA (Small Business Administration) loan to help you get started. Just as with going back to school you need to borrow as little as possible. For example, instead of leasing space you might be able to work out of your home. If you do need to borrow money you might be able to get it from family members at much more favorable terms than if you were to go to a bank. Of course, you will still need to be diligent about paying back the money or you could end up causing a horrible family situation.

The ½ — buying a car

This is definitely a gray area because most experts would say that buying a car is bad debt – as automobiles never appreciate in value. In fact, the minute you drive a new car off the lot it will lose somewhere around 20% of its value. However, if you require that automobile to get to and from work or if you use it in your business then it could be considered to be good debt. If the size of your family has increased and you need a larger sedan or an SUV in order to haul everyone around, you could consider that loan to be good debt or at least necessity debt. If you do find you need a new vehicle, it’s always better to buy used and avoid that 20% depreciation you’d get hit with when you drive a new car off the lot. You’ve probably seen dozens of television commercials offering 24- or 36-month automobile leases. When the leases run out on all those vehicles they are sold at much more affordable prices, which means you might be able to pay off that loan in 36 months instead of 60 or even 72.

When it’s okay to use a credit card

As we said before, credit card debt is bad debt. But if you keep your balance low enough that you can pay it off every month then having a credit card can be a good thing. Using a credit card is certainly safer than carrying around a big wad of cash and can be more convenient than writing a check. The credit card business has become very competitive and there now numerous cards available that come with nice rewards in the form of points, airline miles or cash back. So long as you can pay off your balance at the end of every month it’s certainly okay to use a credit card and reap some of those rewards. In fact, there are people who put everything on a credit card – groceries, gas, clothes, movies, school supplies, take-out meals – in order to earn the maximum number of miles or cash back. There’s absolutely nothing wrong with this strategy as long as you pay off your balances every month. But if you start carrying balances forward you could soon find yourself paying 15%, 19% or even more in interest, which would quickly gobble up those airline miles, points or cash back you’re earning.

Here, courtesy of National Debt Relief, is a short video with 10 good tips for using your credit card(s) sensibly.

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