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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 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.

The Things You Should And Shouldn’t Put On A Credit Card

A credit card just might be the ultimate frenemy. Depending on how you use it, that little piece of plastic could be a good friend or an awful enemy. There are really only two secrets to keeping that credit card a good friend. The first is to use it sensibly. The second is knowing what and what not to put on it.

Using a credit card sensiblyman holding multiple credit cards

This is relatively easy. If you want to use that credit card sensibly you need to keep the balance low and pay it off at the end of every month. What’s a low balance? That’s pretty simple, too. It’s whatever amount of money you have to pay off your card when you get your statement. How much is that? This is question that only you can answer, which means doing a little budgeting. Sit down with a spreadsheet program or a pencil and a piece of paper and list all of your expenses – both fixed and variable. Your fixed expenses would be things like your rent or mortgage payment, car payment and insurance. Your utility bill, transportation costs, clothing and entertainment would be variable expenses. When you finish your list add up everything and subtract this number from your monthly take-home pay. If you have money left over, which we hope you do, you should save some of it and then budget the rest for your credit card. Let’s say, for the sake of the example, that after you subtract your fixed and variable expenses and the money you’ve earmarked for saving you have $100 left over. This then is the balance you could afford to carry on a credit card because you would know you would be able to pay it off at the end of the month.

The danger of carrying balances forward

Why you don’t want to carry a balance forward from month-to-month is because of the power of compounding interest. This is something else that can be either a friend or an enemy. It can be your friend when you’re saving money but an enemy when you create debt. The way it works with a credit card is that once you carry a balance forward you’ll be charged interest on it, which will be carried forward to the next month where you will again be charged interest. This means you are now paying interest on interest. That’s compounding. And it can get ugly. If you were to run up a $5000 balance on your credit card at 15% and made only a minimum payment of $112.50 it would take you 266 months to be rid of that debt and would cost you $5,729.21 in interest – or more than that original balance.

What to put on a credit card

You’ve already seen the real answer to that question, which is to put no more on that credit card than you can pay off when you get your statement. So long as you know what that number is you can put anything on that card and you should probably charge as much as possible as this then becomes a record of your spending, which you could use in your budgeting.

The one exception

The one exception to this rule of charging only what you can afford is major purchases like a washer-dryer or refrigerator. If you need to buy one of these big-ticket items and don’t have the cash available it could be okay to put it on a credit card. Just keep in mind that you will need to pay back the money, which means budgeting for it. If you were to put a $1000 item on that credit card you should budget an extra $100 or $200 a month to pay it off as quickly as possible and keep from falling victim to that old devil of compound interest.

What not to put on a credit cardWoman depressed over bills

It’s important to remember that credit card debt is unsecured debt. Many experts believe that it’s the worst way to borrow money because it typically carries a very high interest rate – much higher than a car or home loan. Plus, credit card debt is never tax deductible as is the interest you pay on a home mortgage or student loan. Given this, there are five things you should never put on a credit card.

The first is college tuition. There are literally millions of American adults who are still paying for their college educations years after they left school. In many cases they haven’t even been able to find work in their fields of study – leaving them members of what’s now called the “underemployed.”

There are two big reasons why you should never put college tuition on a credit card. The first is the aforementioned compounding interest. The second is that it’s better to fund your education with low-interest student loans, grants, part-time jobs and scholarships as this would save you thousands of dollars over the long term.

Second, don’t put your income taxes on a credit card. Even if you find yourself hit with a big tax liability, don’t charge it. While the IRS makes it easy to make your payments with a credit card there are several reasons to not do this. First, the payment processing company will assess a fee of 1.88% to 2.35% and this will only add to the burden you’re already facing. In addition, the IRS will let you set up a payment plan with a much better interest rate. As of this writing its underpayment interest rate charge for each quarter is just 3%, which is much better than you would get with any credit card.

A third thing you shouldn’t put on a credit card is a vacation. While getting away from the stress of everyday life can feel really good don’t finance that trip with a credit card. If you do this you’ll only be coming home to the problems caused by that debt. A better solution is to plan a vacation that fits within your means such as camping, staying at hostels or visiting friends and family members. You say that’s not your idea of a dream vacation? Then set up a vacation fund, contribute to it every month and you will eventually have the money in hand to finance your dream vacation.

You should also never put a big wedding on a credit card. You might be tempted to have a really lavish event but just as with a vacation, you need to plan a wedding that will fit within your means and avoid creating credit card debt. We know that this will be a very special day for the two of you but it’s not worth it if you have to begin your lives together laboring underneath a huge pile of debt.

Last but not least, don’t put medical bills on a credit card. These bills can be staggering but if you talk with your healthcare providers you should be able to get payment plans that have little or no interest and payments you could actually afford. It’s possible that you could also tap into a charitable organization for financial help. But once you put those bills on a credit card that’s it. You ‘re stuck with that debt and with a big monthly payment probably for years to come.

Boost Your Credit History Without A Credit Card

credit historyEveryone needs to build a credit history. It is very important that you have yours as early as possible. This history is indicated in your credit report. It simply records your credit behaviour – how much you owe, how you pay them off and how responsible you are with all your credit accounts. If your record is good, you can get a high credit score. A high score will help you secure a lot of financial opportunities that are not available to those who have lower scores.

Some people actually think that this is a ridiculous requirement in our society. Why is there so much importance in building your credit reputation? After all the difficulties experienced during the Great Recession, is it really a wise idea to continue to care about credit? Wouldn’t it be better to just eliminate it from your life?

This is actually what some Millennials are doing. According to an article published on FoxBusiness.com back in 2014, 63% of Millennials have decided not to own a credit card. This was based on a survey done by Bankrate. In comparison, only 35% of 30-year olds and above do not have credit cards. If you think that this will help you stay out of debt – it is not entirely accurate.

Sad to say, our society, or the financial industry in particular, feel differently about credit. They view the use of credit as an important indication of your financial success – especially in relation to your credit report. A six figure income with a bad credit report to match is not something to be proud of. You may actually be better off earning a simple salary but with a good credit history.

One of the easiest ways to build your history is to use a credit card. After all, you need some credit input in your report. However, this is where people are having a hard time coming into terms with. Credit cards may be a common payment method but a lot of consumers have been burned by the debt that they went through in the past. This is why most of them are having a hard time building their credit reputation. There is some hesitation in using it for fear of falling further into debt – since credit card use come with high interest rates.

5 ways you can build your credit report without a credit card

Fortunately, there are ways for you to build your credit history without succumbing to the dangers of high interest credit cards. It is the easiest, but if you are not comfortable with it, that are other options. Here are some of them.

Use existing companies that you pay each month.

We all make monthly payments outside of our credit cards. These include utility bills and subscriptions like cable or the Internet. The companies providing these services to you are not required to report your payment behaviour to the three major credit bureaus (Experian, TransUnion, Equifax). However, they can submit a report if they want to – and if you ask them to report on your behalf. Simply call them and ask them to submit a report just so you can have a record of good payment behaviour. If you are renting, you can even ask your landlord to submit too. Any consistent and recurring monthly payment may be submitted to help add to the data in your credit history. Take note that since this is not a requirement for them, they could deny your request.

Get a small loan from a credit union.

Credit unions, although they provide almost the same financial services and products as banks, are actually quite different. Credit unions revolve around their members. This is why a lot of them have membership restrictions. If you find a credit union that you can join, open an account with them and apply for a small personal loan. They offer lower interest rates compared to the traditional banks. This will help you put some credit data in your credit history so you can show that you are responsible with your payments. In case, you find it hard to get an approval for a loan, you might want to open a secured loan wherein you will use a savings account that you have with them as collateral. This will lower your credit risk and thus increase your chances of getting an approval.

Apply for an installment loan from a retailer.

Retailers of expensive items allow customers to take out an installment loan on purchases. This will require you to make timely payments for a specific period of time. This is important if you cannot even apply for a loan with a credit union. Not only will this be a record in your credit history, it could also help increase your credit score because having variety in your type of credits will affect 10% of your score. Sometimes, in an effort to get customers to pay, retailers offer these loans with little or even no interest rate for the first few payments.

Opt for peer to peer loans.

This is a relatively new way to borrow money. It is usually done online so you need to explore this via the Internet. The popular companies offering peer to peer loans are Prosper and Lending Club. These are simply platforms where investors from the community meet with borrowers. That means, the financing for the loan that you apply for will be coming from investors in the community. The risk is lower so the interest rate for peer to peer loans are smaller compared to traditional banks. The chance of you getting a loan approval is higher here. And since peer to peer lending companies are required to report to the credit bureaus, your credit behaviour will be recorded in your credit history.

Utilize your student loans.

If you have existing student loans, you can use this to help display how responsible you are with your credit accounts. According to NOLO.com, these loans can help you build a payment history. Make sure you practice proper payment behaviour as it will be recorded in your credit report accordingly. And in case you are planning to go to graduate school, you may want to use your federal student loans to help you get more data into your credit report.

All of these options should give you a chance to build your credit history. Just remember that it is not ownership of the loan that will give you a good credit reputation. It is how you behave in relation to that debt. If you stick to your payment schedule and you always pay the right amount, then you can be assured of a credit history that can reflect a high credit score.

Tips to practice proper credit management

The truth is, it is all about proper credit management. Even if you have a high amount of debt (which is really not recommended), as long as you can keep up with payments, you will have a good record in your credit history.

The thing about your credit report is it needs consistent good behaviour. Even if you start with a good report, one mistake can ruin that good record. It is something that you need to take care of for as long as you want to make financial transactions work in your favour.

To help you practice credit management, here are some tips that we can give you:

  • Only borrow what you can afford to pay. This does not mean you should look at your income to determine how much you can borrow. You need to also consider how much debt you currently have and the expenses that you need to pay for every month. If you have to base it on your income, make sure that it is on your disposable income. This is the income that is left after all your other expenses and payments have been paid off at the end of the month.
  • Practice the right payment behaviour. This is 35% of your credit score. If your credit history shows that you do not pay on time and you fail to meet the minimum payment requirement, you will be viewed as an irresponsible credit holder. That will make you a high credit risk because lenders will view you as someone who cannot be trusted with credit. You will either be denied of your loan application or given a higher interest rate.
  • Monitor your credit report. Sometimes, people end up with ruined credit reports after being a victim of identity theft. CNN.com reported that in 2014, the top complaint from Americans (as compiled by the Federal Trade Commission) involves identity theft. The only way that you can detect this is by looking at your credit history every now and then. You need to look at the records to ensure that everything reflected there are all your financial transactions. If there is one entry that you are not familiar with, then you may want to check that out and have it removed.

Credit management will help you maintain a good credit history. But to practice proper credit management, you also have to practice the right financial management habits. This includes budgeting, saving and smart spending. Being cautious with your financial decisions will ultimately help you improve your current financial standing.

Here is a video from the Bank of America to help you build a better credit report.

Do You Really Need Any Of Those Store-branded Credit Cards?

man holding multiple credit cardsIf you get a store-branded credit card from a store such as Target or Sears you may get reward points and exclusives such as access to sales events and coupons. These perks can definitely help you keep more money in your pocket. But does it really make sense to sign up for one of these cards?

If your goal is to save money than the answer to this question is a definite “yes.” However, when it comes your credit standing the answer is a strong “maybe.”

What to expect with store-branded cards

In terms of saving money, credit cards from Lowe’s and Target both offer 5% off in-store and online purchases. Store-branded credit cards often come with other money-saving bonuses from the initial discount you get when you open the account to special deals and greater rewards when you reach a certain spending threshold. They may also include financing options for big-ticket items.

There are two types of credit cards. Store-branded cards can generally be used only at the associated store and maybe at a few other retailers that are part of the same corporate family. Then there are cards such as MasterCard, Visa, American Express and Discover that can be used practically anywhere. Of the two types the ones that can be used anywhere are more practical and may even come with more benefits than a store-only card.

If you’re trying to repair your credit

If you’ve had a problem with credit and are working to repair it then a store-branded card may be your best choice. The reason for this is that it’s usually fairly easy to get approved for one of them. Of course, once you get the card you need to use it responsibly or you’ll never get your credit fixed.

poor credit scoreYour credit score

Any time you apply for a new card, whether it’s a general-purpose card such as Visa or a store-branded card this will affect your credit score. This is because when you apply for a new credit account this turns into what’s called a “hard inquiry” into your credit history and this will cause your score to drop anywhere from 1 to 5 points. One or two of these hard inquiries won’t have much of an effect on your score but if you trigger several of them within a short period of time this will definitely affect your credit score and not in a good way.

If you do opt for a store-branded credit card to get a special discount or some other important perk don’t just turn around and close the account. Fifteen percent of your credit score is based on the length of your credit history or how long you have had credit. When you close an account that will interrupt your history and may shorten the average age or duration of your accounts. In addition, a full 30% of your score is based on how much money you owe versus the amount of credit you have available. Most experts say that you should use only 10% to 30% of the total credit you have available. When you close an account, there is less credit associated with you so the percentage of your credit in use – known as your utilization rate – rises. And this is one case where an increase is not a good thing. If you do get a store-branded credit card keep it open and then use it occasionally to make sure the store does not close it due to your inactivity. Plus, this can help boost your credit score.

If you’d like to know more about boosting your credit score, watch this short video courtesy of National Debt Relief …

Outrageous interest rates

One of the things you definitely don’t want to do with a store-branded credit card is carry much of a balance from month to month. These cards generally have shockingly high interest rates. These can range from 18% to as high as 25%. Many of them are linked to rewards programs designed to get you to spend. When you couple this with high interest rates on your outstanding balances this can be a slippery slide into financial problems. If you’re not careful, you could dig yourself into a hole that will be very hard to get out of.

The cards to get

If your goal is to get as much cash back as you can on credit card purchases then you would be best off choosing one of the general purpose cards instead of a store-branded card. The perks offered by store-branded cards generally work only with the specific store. This is even true of cards affiliated with the store that are not store branded. Your better choice would be one of the general-purpose rewards cards. As an example these, the Chase Freedom card currently offers a 0% APR for 15 months and the interest rate after this introductory period starts as low as 13.99%, depending of course on your credit score. The Freedom card also offers a 5% rebate up to $1500 worth of purchases on categories that rotate every three months. For example, Freedom cardholders could recently qualify for money back on purchases at more than 45 department stores as well as Amazon.com.

When to use a general-purpose credit card

There is no question but that it’s always better to use cash than a credit card. If you see something you want to buy on impulse it’s just a lot harder if you have to pull money out of your wallet instead of using that little piece of plastic. Plus, it’s just flat impossible to get in trouble with debt when you pay cash for everything. But there are times when it does make good sense to use a credit card.

For example, in some cases if you buy an extended warranty plan with a credit card the issuer may add a year of coverage at no cost. Second, most credit cards will protect you against fraudulent charges and ID theft by limiting your liability to $50.
If you are traveling abroad, it’s just much easier to use a credit card then carrying a wad of traveler’s checks. There are a few places that favor cash above a credit card but in general the easiest way to pay is with a credit card. However, if you use a card for foreign travels make sure there’s no foreign transaction fee.

When you rent a car with a credit card it will save you money because it should allow you to opt out of the car rental company’s rental insurance. Another good place to use a credit card is for airfare. When you buy your ticket with a card and your bags or their contents are lost, stolen or damaged this will probably be covered. You may also be given money for clothing and toiletries while you’re waiting for your baggage to arrive. Buying your groceries with a credit card can also pay off because many of them offer bonus points for purchases that you make at the supermarket. As an example of this, the Blue Cash Preferred Card issued by American Express offers 6% back when you use it to buy groceries. And finally there are those online purchases. While there is still a bit of risk involved in using credit cards to buy stuff online many credit card companies offer liability protection so that you’re not responsible for any unauthorized transactions so long as you keep your account in good standing. However, it’s important to review your statements every month and if you find unauthorized usage report it immediately.

The Good And Bad Side Of The Rising Credit Card Debt

exchange of debt and cardCredit card debt relief is something that became popular only a few years ago. Before the Great Recession, nobody really thought about getting serious about their card payments. In fact, a lot of consumers seem content with paying the minimum payment requirement on their billing statement.

It was actually not so bad – at least, as long as consumers had a steady income pouring in. But when jobs were compromised when the economy crashed, the credit card payments suddenly became quite a burden. A lot of people struggled to finance their basic needs and ended up skipping on their debt payments. Of course, skipping on payments of credit cards is the worst reaction. Not only will your balance grow because of the accruing interest, your credit score will also suffer. It will hinder you from pursuing financial transactions that could have improved your personal finances.

But although credit card debt caused the downfall of various households in recent years, the increasing balance of consumers can actually indicate something good.

The positive and negative side of the consumer credit card balance

The growing credit card balance of consumers is a good indication that people are more confident to use credit. This is probably because more people have jobs now. According to the study done by CardHub.com, nearly 3 million jobs were created in 2014 and that caused the unemployment rate to go  down to 5.6%. This is considered to be the lowest level for the past 6 years. This means more people have a steady source of income to finance their needs. The positive side of the growing card debt is that people have a higher financial confidence.

Since the US economy is 70% dependent on consumer spending, this boost in credit spending is actually good news. It is an indication of the strengthening economy.

But despite the positive side of this type of debt, it still comes with a lot of negative vibe for consumer finances. Your credit card balance, no matter how much it screams confidence in the economy can still be destructive. At least, it can be true if you do not know how to manage your debt. According to the study of Card Hub, 2014 alone added $57 billion credit card debt – which is an increase of 47% compared to that of 2013. The average credit card balance per household is at $7,200 by the end of 2014. This is a huge amount for a household to carry.

On its own, that balance is nothing to worry about. But if you factor in the other household debts like mortgages, auto loans or student loans, the total becomes unbearable. If you also consider the high interest rate of credit cards, you know that one financial crisis could wipe you out for good.

The thing about the improving economy is that we are lulled into a sense of sustainable spending habits. According to an article published on CNN.com, this February alone, 295,000 jobs were added. However, the article also cautions that people should not concentrate on job growth alone. Although unemployment have improved a lot since the Great Recession, they should also monitor the wages that workers are getting. Despite the increasing number of employment, the wages only got a 2% increase. The article explained that in a healthy economy, the wage increase should be between 3.5% to 4%.

With this in mind, you should know that a new job should never be a reason for you increase your credit card spending. Although you may have more capabilities to  pay it off, it does note mean you should increase your debt too.

How to practice proper credit card management

The key to get the balance between the good and bad side of the rising credit card debt is to practice proper management of your debts.

There are many tips to help you with credit management. According to an article published on USAToday.com, financially successful people use fewer credit cards. Not only that, they also make it a habit to pay their balance in full at the end of each month. They do not let any balance carry over the next month because they know that they will be forced to pay charges and an interest will accrue on their balance. Not only do they pay in full, they also pay on time. They use reward cards to help them save and they also monitor their credit score. These habits help these successful people stay ahead of their debts.

If you want to be a smart credit card user, you need to start implementing what the successful people are doing. Their financial success is evidence that they are doing something right. And beyond that here are other things that you may want to do.

  • Budget your credit card spending. If you want to manage your money – whether that is your income or expenses, you need to budget plan. You want to make sure that your monthly financial resources will be used according to what your life needs. If you need to use your credit card in order to maintain a good credit score, make sure that it is included in your budget. For instance, you will allot $100 worth of credit card spending. You set aside this amount so that you can pay your card statement at the end of each month. Do not spend beyond this amount so you will always be able to pay your balance at the end of each month.
  • Track where your money goes. This is another part of your budget plan. But we will discuss it separately. It is important for you to track your spending because you want to make sure that it is done towards what is necessary. It does not mean you will stop having fun. What you want to do is to get rid of the unnecessary expenses that you just spend on because of peer pressure or as dictated by society. You want to concentrate only on what is important to you. That way, you can limit the expenses that you will make each month – especially those that will be done through your credit card.
  • Try to save by earning rewards. This is the best way to gain something from your credit card spending. If you have to use a card, use it in such a way that you will gain a reward. These rewards can be freebies, discounts, special promotions, etc. Take advantage of these so you can get something out of the debt that you are making.

Remember that your credit card use does not always have to lead to debt. There are a lot of people who have come out of the Great Recession without a scratch simply because they knew how to use their credit cards well. In fact, they were able to survive because they practiced proper credit management.

It is important to understand that it is not the credit card’s fault if you suffered financially in the past. It was your own habits that led you to your financial demise. You can continue to use your card but make sure that you use it wisely. Do not let the balance overflow without knowing how you will pay it back. A good rule is, if you cannot pay for it in cash, then do not buy it. Use your credit card just to keep your credit score high – but have the financial resources to always pay it back.

3 Ways You Can Pay Your Credit Card Debt

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

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

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

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

3 options to pay down your credit card balance

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

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

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

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

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

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

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

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

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

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

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

Amazingly Simple Solution To Money Problems – Shred Your Credit Cards

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

We’ve become a nation of credit card junkies

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

It’s borrowing from your future

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

The nasty power of compounding interest

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

Shred them but don’t close your accounts

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

How to live without credit cards

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

The differences

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

How could you pay cash for all your purchases?

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

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

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

The snowball strategy

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

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

Why Are Millennials Using Credit Cards For Small Purchases?

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

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

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

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

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

Study shows Millennials like to use cards for minimal purchases

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

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

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

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

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

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

When is it okay to use your credit card account

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

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

When you need to boost your credit score

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

When you can pay it off immediately

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

When the rewards are worth it

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

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

How To Improve Your Credit Score Without Making Yourself Crazy

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

So what the heck is a credit score?

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

What lenders look for

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

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

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

Pay your debts on time

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

Pay off your credit cards

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

Fix errors

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

Moderation in all things

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

Up your credit limit

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

Resist the impulse to open more accounts

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

Adult WomanHang on to your older cards

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

Time will go by

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

How about a secured card?

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

The net/net

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

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