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8 Important Credit Cards FAQs You Need To Know

man holding multiple credit cardsCredit cards can be a good friend or a terrible enemy depending on how you use them. If you use your credit cards sensibly they can be an easier way to pay for things than carrying a big wad of cash. If you need to make a major purchase and don’t have the money in your checking account to cover its costs you could use a credit card to pay for it. Most of today’s credit cards come with some nice perks such as cash back, points and airline miles. If you lose your job or run into some other emergency your credit cards could bail you out until you’re back on your feet. And last but certainly not least credit cards can help you track your spending, which can be very important if you’re trying to stay within a budget. But credit cards can also encourage you to spend more money than you have, which means creating debts that you may have a very difficult time paying back. There are also some other things about credit cards you need to know and hear are eight of the most frequently asked questions about them.

Q. Why is it so important that I pay off my balances at the end of every month?

The answer to this has to do with a thing called compounding interest, which some people have called one of the most powerful forces on earth. It can hurt you when you carry balances forward because you’ll basically be paying interest on interest. As an example of this if you were to have a $10,000 balance on a credit card that has a 14% interest rate that’s compounded monthly your finance charge or interest the first month alone would be $116.67. If you were to then make just a $200 minimum payment only $83. 33 would be applied to the principle. The next month your balance would be $9916.67 but only $82.64 of your minimum payment would go towards the principal. At this rate it would take you more than 36 years to pay off your original balance assuming you made no more charges on the card.

Q. Is it a good idea to close any credit cards I’m longer using?

The answer to this one is a simple, “no.” The reason for this is that 30% of your credit score is based on your credit utilization ratio. It’s calculated by dividing your total credit card limits by the amount you’ve used. Let’s suppose you have $10,000 in total credit card limits and have used or charged $5000. In this case your credit utilization ratio would be 50%, which would be too high. Ideally you should keep that ratio below 30%. If you did have $10,000 in total credit available and had used $3000 of it your credit utilization ratio would be 10%. But if you are to close two cards so that your total amount of credit available dropped to $7000, your credit utilization ratio would immediately go to 42% and this would have a negative impact on your credit score.

Q. Why is it important that I read and understand my credit card agreements?

Your credit card agreements are contracts that spell out what you are expected to do. As a general rule they include fees for late payments or if you go over your limit. It’s important to know what these are because if you’re not careful they can begin to really pile up, which means you’ll just be adding on more debt. It’s especially important to read the agreements that come with rewards cards so you will know exactly how much cash back, points or miles you’ll earn depending on what you do. You could also find there are fees that will be tacked on if you use that card outside the US. It’s important to carefully read all of your credit card agreements including the fine print so you’ll know how to use that card wisely.

Q, Is it okay to use a credit card to get a cash advance?

No matter how tempting it might be to use one of your credit cards to get a cash advance the answer to this is just say no to yourself. We don’t know of a single credit card where the interest charges aren’t a great deal higher when you use it to get a cash advance. This is yet another reason to read your credit card agreements carefully. You may think you’re paying only a 14% APR but that’s probably just for purchases. The card’s interest rate could go as high as 19% or even 21% on cash advances. You might be thinking you’re paying only 14% when you take out a $500 advance but when your next statement rolls in you could be in for a nasty surprise.

Q. My spouse or parent died leaving a large amount of credit card debt. Do I have to pay this?

The answer is you probably will not be responsible for his or her debts unless you were a cosigner on the account. The exception to this is if you live in a community property state such as California, Nevada, New Mexico, Idaho or Texas. In this case any debts that were incurred during your marriage will be considered as community property and you’ll likely be responsible for them.

Q, If I can’t pay my credit card debts should I file for bankruptcy?Hand holding batch of credit cards credit card debt

Unfortunately, there is no simple answer to this as there are other factors involved in making this decision. However, it’s important to understand what a bankruptcy will do to your financial life. For one thing, it could drop your credit score by as many as 200 points. It will stay in your credit reports for 10 years although the effect it has on your credit score will diminish as the years go by. More and more employers are checking credit reports as part of the employment process so bankruptcy could actually cost you a good job. You will have a hard time getting new credit for at least two years after bankruptcy and when you do it will be “low balance, high interest credit.”

Q. My child has a lot of credit card debt. What can I do to help?

Probably the best thing you could do is give him or her a lot of information about smart money management. But if you’re considering paying off that debt keep in mind that you may just enable more bad behavior. But if you just can’t resist doing this make the money a gift and not a loan. That way there won’t be any conflict in the future about getting paid back – or not being paid back. Alternately, you could agree to give your child the money but only if she or he would be willing to sign an official loan agreement. You might also ask your child to set up automatic transfers of the payments to your checking or savings accounts. That way there will be no question about whether or not a check was mailed.

Q. What is the ideal number of credit cards to carry?

As a general rule you should be okay with just two major credit cards. One of them should be a low interest rate card for those times when you must carry a balance forward. The other should be one with a grace period. Of course, the best card would be one where there is no annual fee and no interest for some period of time. If you’re concerned about your credit then two cards is a good number as well. However, it’s also a good idea to have at least four credit accounts of different types. This could be your mortgage, a car loan, a major credit card and a store card. Part of your credit score is based on the types of credit you have as this shows potential lenders that you can successfully manage different types of credit.

Finally, here is a short video, courtesty of National Debt Relief, with some good information on how to manage a credit card.

Is It Wise To Use Personal Loans To Pay Off Credit Card Debt?

piggy bank with personal loanDo you think it is a great idea to use personal loans to pay credit card debt? Some people might disagree. After all, it is like filling one hole by digging a new one. Instead of getting out of debt, you are just shifting it around. It seems hardly a solution to your credit situation.

However, there is an article published on Forbes.com that could make you look at installment loans differently. If you consider the high interest rate of credit cards and the debt pit that you can fall into because of it, you will realize that you may be better off with personal loans.

The article mentioned that before there were credit cards, these installment loans, as they are also called, were the solution for short term credit needs. It is defined as a simple product. When you borrow an amount, it is usually fixed and even your terms are fixed. In most cases, the interest rate is fixed too. It is practically the same for all financial institutions. They just offer these loans with varying interest rates and fees. The article even mentioned that for banks offering these loans are not really excited by this financial product. That is because they hardly get any profit from it.

At least, not in the same way as credit cards.

How loans were replaced by credit cards

The article from Forbes indicated two good reasons why personal loans were easily replaced by credit cards.

Consumers found them appealing because credit was readily available.

If you want to borrow money through installment loans, you need to go through a process that will require you to file an application and wait for an approval. Usually, the approval takes some time to happen.

When you use credit cards to borrow money, you only have to apply for it once. That is why it is called a revolving debt. After you get approval for the credit card, you can keep on using it as long as you have not reached the credit limit. You can keep this card in your wallet and take it out whenever you need to buy something and you do not have any cash.

Banks observed that consumers were not conscious of their credit use when they pay through credit cards.

Credit cards also replaced personal loans because banks realized how profitable it was. They observed that consumers were not conscious of the interest rate of their credit cards. Even if they were given high interest rates, they continue to use it for purchases. Not only that, the article mentioned how consumers spent more money because of these cards.

If they use personal loans, consumers are more conscious of the amount of debt that they have. The likelihood that they will borrow as much as credit card users is not likely to happen. This is the reason why banks put more effort into promoting these cards compared to installment loans.

However, the article from Forbes said that all of these reasons seem to be a thing of the past. With the popularity of doing business via the Internet, there is an emerging type of debt that seems to resurrect the appeal of personal loans.

How credit cards should be threatened by online loans

Online lending is gaining popularity because of the convenience that it brings. So far, the most trending are peer to peer lending or social lending. The main appeal of this loan is the low interest rate. If you compare it to the high interest rate of credit cards, you will appreciate the rate offered by peer to peer lending.

If you are wondering how this type of debt can afford to offer low interest loans, it is because of three reasons.

Lending companies serve to connect borrowers with investors.

The first reason is the very system by which peer to peer lending functions. They only serve as the platform where borrowers and investors meet. They are not directly financing the loans. This makes them an unbiased party that can help regulate the interest rate that will be offered to borrowers. These companies do not earn from the loan itself – they earn from the service they provide and the origination fees. In most cases, these are quite transparent and can be viewed in the website of the peer to peer lending company.

Money comes from investors in the community.

In peer to peer lending, the personal loans are being funded by investors from the community. They are not like banks who are focused in profits because they have shareholders to satisfy. These investors are ordinary people who have extra money to spare. They are not as profit driven and that makes them more likely to keep their interest low. According to the website, LendingMemo.com, investors usually earn 5% to 9% on the risk that they take for online lending – at least this is true for Lending Club investors. The average rate for loans borrowed through this lending company is 13.4%. That is not bad if you compare it to the high interest rate that consumers are burdened with because of credit cards.

Transactions happen online.

The last reason why peer to peer lending can afford to offer low interest rates is because all the transactions happen online. Their overhead expenses are not as high as that of the brick and mortar banks. Since their overhead costs are lower, they do not have to put as much interest into their loans.

These reasons make personal loans more appealing than credit cards. This is probably why it is becoming logical to think that you can borrow this money to help pay for your credit card balance.

What to do when borrowing from online lenders

In case you are considering to use these installment loans, you need to remember these tips:

  • Make sure the purpose of your loan will improve your financial situation. Some people will think that they can borrow this money and use it to buy other things. Do not do this. If you are going to use credit – regardless of the type of debt, make sure that it is meant to improve your financial situation. If not, then do not borrow it. If the loan you will borrow can help you recover from the high interest credit card debts that you have, then go ahead and proceed with the loan.
  • Compare interest rates. Shop for different personal loans. Make sure you compare rates before you decide what you will borrow. It is important to choose the right loan – usually, these are loans that has the lowest interest rate. That will help you save more money as you pay off your debt. You can use sites like MagnifyMoney.com to help browse for interest rates.
  • Know how you will pay it back. Lastly, you need to have a plan to pay back your loan. If you do not have a plan, then you need to hold back on your loan. It is not enough that you know that you have the income to pay it off. You need to list your expenses and compare it to your income. Then, you should plot where you will get the money to pay for the loan that you are about to take out.

Keep in mind that using personal loans to pay for your credit card debt is okay – as long as it will help you save in the long run.

How To Deal With Debt If You Borrowed Too Much

woman looking at receiptLearning how to deal with debt is not the easiest lesson. This is especially true if you are already drowning in it.

The sad thing is, you cannot live without debt – or at least it is difficult to not have debt. Our society has made debt quite important by inventing the idea of credit scores. This score is something that will help lenders and creditors determine if you can be trusted with a credit account. In order to have a good credit score, you need to be in debt and display good behavior in paying it back.

In our society, consumer debt indicates confidence in the economy. It also indicates that you are confident about your personal financial position. After all, you will only borrow money if you know that you can financially deal with debt. Unless of course you are facing an emergency. But even then, you cannot borrow money unless the lender knows that you can handle the credit that you are taking out.

Since our society treats debt as the norm, you need to understand that it is up to you to be careful about how much money you will borrow. You need to make the right choices because if not, you can end up compromising your future. It is important for you to determine if debt will bring you financial wealth or death.

According to a recent survey from Bankrate.com, 37% of Americans are in a dangerous financial situation. It is revealed that 24% of the survey respondents have more credit card debt than their savings. 13% of their survey respondents are in a different situation but it is no less dangerous. They said that they do not have credit card debt, but they also do not have any savings. That means if something happens that will require them to spend beyond their budget, they could end up in debt – just like that.

Both of these situations can make their finances turn for the worse – with just one emergency situation.

While borrowing money is not necessarily something that you should avoid, you should always be careful to loan only what you can afford. When you end up borrowing too much, it might be more difficult to deal with debt.

Signs you borrowed too much on these top 4 debts

There are so many debts out there but we will be concentrating on the top four debts in the country: mortgage, student loan, auto loan and credit card debt. Let us discuss the signs that you borrowed too much money on these different loans. Later on, let us discuss how you can handle these debts after you have put yourself under so much debt.

Mortgage

Buying a house is one of the most expensive purchase that you will make. That makes mortgages one of the highest debts in every American household. Although that is true, this type of debt is something that will help you grow your equity. As you send in your payments, the equity in your home grows. That signifies that you own more and more out of your home.

 

The sign that your mortgage is starting to become more than what you can handle is when you find the monthly amortization difficult to meet. When you realize this, you should come up with a new plan to deal with debt. You know that you cannot compromise your home loan payments because you might lose your house in the process. Not only that, if your mortgage ends up being bigger than the actual value of the house, that means you really borrowed too much.

Student Loans

For the past few years, student loans have been making headlines because it keeps on growing and growing. It is starting to pull back the financial growth of young adults. A clear sign that you have a lot of student loans is when you are finding it hard to get a job that is paid enough to help you meet your monthly payments. Now this can be a problem especially when you have mostly Federal student loans. They have very aggressive collection methods that includes wage garnishment – something that they can do even without a court judgement. They can also get your tax refund, Social Security benefits, etc.

Auto Loans

In most cases, you are at a disadvantage when you get car loans. The moment you drive off the dealers with your car, it already depreciated on you. In essence, you will always borrow too much with this type of debt. That is why you need to exert caution when you deal with debt from buying a car. The truth is, it is ideal that you pay your car in cash – or at least, save up as much as you can so you can pay in cash. It is how you can keep your losses from being too much.

Credit Cards

Now this is the type of debt that you can easily borrow too much of. According to an article published on TheSimpleDollar.com, the average American household owes $15,609 in credit card debt. This data came from the Federal Reserve and only includes households that are indebted. There are two ways to determine if you borrowed too much. The first is when you reach your credit limit. The second is when you can no longer afford to pay the minimum payment requirement. The thing about credit cards is that it makes purchasing convenient. You do not have to reapply for new credit in order to borrow money. As long as you have not reached your credit limit, you can go ahead and continue to use credit to purchase almost anything. That is what makes this debt one of the most dangerous that you can be involved with. It is also notorious for the high interest rate that can ruin your finances quite easily.

What to do when you borrowed more than you can handle

Now that you know the signs that you borrowed too much, it is time to find out how you can resolve this problem. Unless you deal with debt the right way, you will never achieve debt freedom. So here are our tips for the top 4 debts that you borrowed too much of.

Mortgage

We all know that not paying your mortgage would mean losing your home and the equity that you have built upon it. Now the best way to deal with this debt is to reach out to your lender. You need to inform them that certain changes happened to your finances that made it difficult for you to pay off your monthly amortization. Ask them about the options available based on how much you can afford to pay. Among your options would probably include refinancing your loan. The goal here is to get a new loan with better terms, use it to pay the old loan and continue paying the mortgage based on the new terms. The term should ideally have lower interest rates or a longer payment term – anything that will help you reduce the monthly amount that you need to pay.

Student Loans

You have to be careful when you deal with debt owed to the government. Their collection methods are quuite aggressive. In case you are in the midst of a financial crisis, you can apply for deferment or forbearance. If you do not qualify for it, you still have other options. When it comes to student loans, an article published on CNBC.com suggested three options that you can pursue.

  • Ask for forgiveness. If you work in the public sector or the army, you may be able to qualify for loan forgiveness. You need to check with your loan servicer or lender to find out if you can apply for forgiveness.
  • Qualify for a repayment plan. If you current repayment plan is difficult to meet, talk to your loan servicer if you can qualify for other repayment plans. The most common option are income-driven repayment plans. These are dependent on how much you earn each month and your financial position. The monthly amount that you need to pay is usually a percentage of your salary.
  • Automate your payments. In most cases, if you automate your student loan payments, you will get a discount. So if you need to lower your monthly payments and if you want to make it convenient, then opt for auto payments.

Auto Loans

The best advice when buying a car is to pay for it in cash. If you cannot afford it, then pay at least 20% on the downpayment. You should also try to limit your terms to 4 years or less. You can also be careful with the expenses associated with your car. If you can save on car maintenance costs, it can make your budget more bearable.

Credit Cards

To deal with debt borrowed through credit cards, you need to look at options that will give you low interest rates. You can use debt consolidation loan so you can put your balance into a low interest debt. Another option is balance transfer. You can get a 0% credit card, transfer the balance of your high interest cards and then pay off the principal while the 0% introductory period is still in effect. You can always get help by going to a non profit credit counselor. They give free consultations so you can get professional advice for your debt situation.

Here is a video about how a family and their financial struggles. Bryton, the one in the video, married young and she said that before marrying, their parents insisted that they take a Dave Ramsey course that will help them manage their finances. This came at a great time because both she and then fiance did not have any debts yet. So when the time came for them to borrow money, they were very wise about it. Bottom line is, you need to know how to handle your finances because it will not only help you make the right financial decisions. Financial literacy can also get you out of tight spots in case you made the wrong decisions. Watch this video to find out about how their financial knowledge got them through the ups and downs of their personal finances.

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.

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