Two of the great features of credit cards is their ease of use and that they are easy to obtain. However, these are also their greatest liability because it tends to be so easy to get into debt.
How many times have you received unsolicited offers in your mail box for a pre-approved credit card? Then the temptation rises to apply for that credit card and hence make some purchase you have been delaying because you were not financially ready at this time. After a few months you may realize that this payment is hard to fit into your budget. Then another necessary purchase is required, so things worsen. You may be tempted to apply for another credit card in hopes of finding some relief, when deep inside you know that will not happen in the long run.
Sometimes things happen that are out of your hands - unplanned medical bills, major automobile repairs, etc. However, your goal should be to bullet proof your financial standing and develop a strategy to move forward.
Perhaps the simplest advice one can receive is this - do you absolute best to live within your means!
Here are a few tips to remember as you build a strategy to help your financial future:
1. Review your purchases on each credit card statement. Ask yourself if you really need that item. If you do not, consider returning the item.
2. Cut unnecessary spending. Some of the easiest things to cut are usually eating out and luxury drink purchases. Do you really need that cafe latte on the way to work this morning?
3. Understand what you owe. Evaluate what you owe on each credit card and the annual interest rates, minimum payments, and balance. This may be the time to consider a low rate balance transfer card - with the goal of paying off the debt, not continuing to spend.
4. Always make at least the minimum payment. The worst thing you can do is skip credit card payments. First, you risk damaging your credit. Second, you are probably going to be charged late fees and other penalties for this. If possible, pay more than the minimum to get your debt under control, but the cardinal rule here is do not miss a payment!
5. Make a game plan and celebrate your milestones. For example, when you reach the half way point of paying off your credit card debt, do something nice for yourself (within your means of course!).
Other useful points of interest to remember:
Follow the 20/10 rule as it applies to debt. The general rule is not to borrow more than 20% of your after tax net income. Also, try to keep your monthly payments less than 10% of your take home pay per month.
Have a goal to pay off the purchase when you make the purchase. For example, if you want that $1500 new computer, determine how you plan to pay for it. Will you be able to afford paying an extra $100 on the credit card bill to pay towards this purchase? Or perhaps you know you will be receiving an annual bonus, and these proceeds can be used.
Keep balances on your credit cards less than half of the available credit limit, this looks stronger on your credit report and also leaves you some latitude for unforeseen emergencies. For example, if you have a $5000 credit limit on a credit card, keep the balance below $2500.
Credit Card Fees
In 2007 credit card companies charged more than $18 billion in penalty fees to people who carried a revolving balance on their credit cards. This is a huge source of revenue for credit card issuers.
If you carry a balance on your credit cards, there are several things you need to watch out for:
Due date changes - Some banks have been accused of switching payment due dates. Also, some banks have narrowed payment periods from 31 to 20 days. If you are late on a payment, credit card issuers may raise your interest rates, charge a late penalty, or both.
Special charges or penalties - Many people know about late charges if a payment is late or missed, but there are other fees that can be charged as well. For example, there can be cash advance fees, balance transfer fees, foreign currency fees (if you use your card overseas), paying your bill over the phone, etc.
Unexpected rise in your annual percentage rate - Sometimes if you fall behind in payments to just one creditor or if you credit score drops for any reason, it can cause other credit card issuers to raise your APR. Also, some credit card issuers will raise your rate if you approach your credit limit.
Legal Rights Limits - Approximately 75% of credit cards have arbitration clauses in their agreements with the cardholder. This means that disputes must be resolved in private arbitration forums rather than in court. This can sometimes cause issue resolution with credit card companies to be increasingly difficult.
How many times have you received unsolicited offers in your mail box for a pre-approved credit card? Then the temptation rises to apply for that credit card and hence make some purchase you have been delaying because you were not financially ready at this time. After a few months you may realize that this payment is hard to fit into your budget. Then another necessary purchase is required, so things worsen. You may be tempted to apply for another credit card in hopes of finding some relief, when deep inside you know that will not happen in the long run.
Sometimes things happen that are out of your hands - unplanned medical bills, major automobile repairs, etc. However, your goal should be to bullet proof your financial standing and develop a strategy to move forward.
Perhaps the simplest advice one can receive is this - do you absolute best to live within your means!
Here are a few tips to remember as you build a strategy to help your financial future:
1. Review your purchases on each credit card statement. Ask yourself if you really need that item. If you do not, consider returning the item.
2. Cut unnecessary spending. Some of the easiest things to cut are usually eating out and luxury drink purchases. Do you really need that cafe latte on the way to work this morning?
3. Understand what you owe. Evaluate what you owe on each credit card and the annual interest rates, minimum payments, and balance. This may be the time to consider a low rate balance transfer card - with the goal of paying off the debt, not continuing to spend.
4. Always make at least the minimum payment. The worst thing you can do is skip credit card payments. First, you risk damaging your credit. Second, you are probably going to be charged late fees and other penalties for this. If possible, pay more than the minimum to get your debt under control, but the cardinal rule here is do not miss a payment!
5. Make a game plan and celebrate your milestones. For example, when you reach the half way point of paying off your credit card debt, do something nice for yourself (within your means of course!).
Other useful points of interest to remember:
Follow the 20/10 rule as it applies to debt. The general rule is not to borrow more than 20% of your after tax net income. Also, try to keep your monthly payments less than 10% of your take home pay per month.
Have a goal to pay off the purchase when you make the purchase. For example, if you want that $1500 new computer, determine how you plan to pay for it. Will you be able to afford paying an extra $100 on the credit card bill to pay towards this purchase? Or perhaps you know you will be receiving an annual bonus, and these proceeds can be used.
Keep balances on your credit cards less than half of the available credit limit, this looks stronger on your credit report and also leaves you some latitude for unforeseen emergencies. For example, if you have a $5000 credit limit on a credit card, keep the balance below $2500.
Credit Card Fees
In 2007 credit card companies charged more than $18 billion in penalty fees to people who carried a revolving balance on their credit cards. This is a huge source of revenue for credit card issuers.
If you carry a balance on your credit cards, there are several things you need to watch out for:
Due date changes - Some banks have been accused of switching payment due dates. Also, some banks have narrowed payment periods from 31 to 20 days. If you are late on a payment, credit card issuers may raise your interest rates, charge a late penalty, or both.
Special charges or penalties - Many people know about late charges if a payment is late or missed, but there are other fees that can be charged as well. For example, there can be cash advance fees, balance transfer fees, foreign currency fees (if you use your card overseas), paying your bill over the phone, etc.
Unexpected rise in your annual percentage rate - Sometimes if you fall behind in payments to just one creditor or if you credit score drops for any reason, it can cause other credit card issuers to raise your APR. Also, some credit card issuers will raise your rate if you approach your credit limit.
Legal Rights Limits - Approximately 75% of credit cards have arbitration clauses in their agreements with the cardholder. This means that disputes must be resolved in private arbitration forums rather than in court. This can sometimes cause issue resolution with credit card companies to be increasingly difficult.
Debt Management