New research finds that credit-card holders pay down their debts more slowly when their statements suggest a minimum monthly installment. The Economist reports on the study, by University of Warwick psychologist Dr. Neil Stewart:
Mr. Stewart presented 413 people with mock credit-card bills of £435.76 (about $650) that were identical — except that only half mentioned a minimum payment of £5.42. Participants were asked how much they would pay.
Among those inclined to pay the bill in full, the presence of the minimum payment hardly made any difference. However, those who wanted to pay just part of it handed over 43 percent less on average when presented with a minimum payment. In the real world, this would roughly double interest charges.
It turns out that, for those inclined to pay their debt bit by bit, the monthly minimum acts as a mental anchor, exerting an enormous amount of influence on how quickly that debt gets paid.
Stewart found that as suggested minimums drop, actual payments fall right along with them, even among people who pay above that bottom limit.
So the minimum payment can be a helpful tool for card holders. It gives them a guide on how much money to pay to keep their debt from exploding under compound interest. But it’s a much better deal for the companies that issue the cards.
Say you’re a credit card company. You make money every time one of your card holders carries a balance at the end of the month, because you charge interest on that debt. A lot of interest. The longer your card holder carries debt, the more money you make.
But if that debt tips out of control, and the card holder defaults, you lose everything.
So you want to find a middle road, a strategy that will keep your card holder’s debt manageable, but that will stretch out repayment as far into the future as possible, maximizing your profits.
Considering Stewart’s findings (paper available here), minimum monthly payments seem like the most surefire way down that middle path.
Thursday, January 29, 2009
Monday, January 26, 2009
Credits Cards if you have Bad Credit
Ever wondered how and why you can go online and be approved for credit within seconds? Or receive a pre-qualified loan or credit card without anyone asking how much money you make? Or why one interest rate is made available to your neighbor and another to you?
The answer is credit scoring, a term more and more Americans are learning about, but still often misunderstand. Your credit score is a number generated by a mathematical formula based on information in your credit report. This information is compared to information on tens of millions of other people and the resultant number is a highly accurate prediction of how likely you are to pay your bills.
Credit scores are used all the time, and if you've applied for a mortgage, a credit card or even a mobile phone the rate you received was probably directly related to your credit score. People with the highest scores get the lowest interest rates: The higher the number, the better you look to lenders.
Scores range between 350 and 800 and most people have ratings that range between 600 and 800. A score of 720 or higher is the equivalent to a grade A – and will allow you to get the most favorable interest rates from a borrower.
Unfortunately those at the lower end of the scale constitute a greater risk in the minds of lenders and are charged a higher rate of interest. It seems wholly unfair: the rich get charged less; and those most in need of credit more. But the way lenders see it, borrowers with lower credit scores are charged more to offset the risk to their investment.
Perhaps because of this, the idea of having a lower credit score carries a kind of stigma in some minds. But if you have a poor credit rating don't worry – you’re certainly not alone. People with a poor credit rating number in the tens of millions. In fact a recent survey revealed that nearly one in seven Americans have credit scores below 600; and a further one in ten rate between 600-650.
Having a bad credit rating is nothing to be ashamed of and can happen to anyone. Given time, patience and some work a bad credit rating can be changed for the better, meaning better rates for you.
There are many different ways you can go about getting a new credit card when your score isn't entirely up to scratch. Nevertheless, the first and most important thing to understand before you borrow any money is this: You must have sufficient income to pay your current bills and overheads PLUS your credit card repayment.
If you’re sure you’re ready for that sort of commitment, the secret behind successfully applying for a credit card is simple. Lenders love stability. The more routine you have in your life, the better the chances of them lending you money with a credit card, and the better the terms of the deal.
No one is going to take a chance on you if you don't have a steady and sufficient income. Most lenders want to see you at your current job for at least a year or more. The longer you work for the same employer the better the chances of you getting financed. Working in an industry where a certain amount of routine is par for the course is ideal. Think teaching, law or medicine. Lenders love doctors, lawyers and teachers because of the stability their jobs provide.
Credit card companies don’t like nomads. Ideally, they will want to see you at your current address for a year or more. Naturally, the longer at the same address the better.
If your credit is borderline, or if you simply have no credit you might have someone who is willing to act as the primary card-holder and have you as an additional name on the account. Of course, this person must have a good credit rating and meet the lender's credit-scoring criteria. But this can work well to give you a foot in the marketplace. If you’re an immigrant, but have followed a relative who has been in America for a few years longer, this can be a good strategy to help to start to build up a credit history. Once you’re ‘in’ the system, you’re underway.
Chances are, unfortunately, that if you do get a credit card with a low credit score, you won’t see a low interest rate. Merely paying off the minimum balance each month is also the most expensive way of borrowing money and will cost you a good deal of money over the length of the repayment. Aim to use your credit card for short term debt, and pay back the amount in full whenever you can. Some lenders will also put a low credit limit on your account – which is not always a bad thing.
Don’t be put off by any of this. If you take the long-term view, as far as your credit rating goes, borrowing money with a credit card and meeting the repayment deadlines will push it ever further up. You might not get the best lending terms first time around, but if you can prove that you’re a good borrower, you can expect a higher credit rating and more favorable terms on your credit card next time around.
The answer is credit scoring, a term more and more Americans are learning about, but still often misunderstand. Your credit score is a number generated by a mathematical formula based on information in your credit report. This information is compared to information on tens of millions of other people and the resultant number is a highly accurate prediction of how likely you are to pay your bills.
Credit scores are used all the time, and if you've applied for a mortgage, a credit card or even a mobile phone the rate you received was probably directly related to your credit score. People with the highest scores get the lowest interest rates: The higher the number, the better you look to lenders.
Scores range between 350 and 800 and most people have ratings that range between 600 and 800. A score of 720 or higher is the equivalent to a grade A – and will allow you to get the most favorable interest rates from a borrower.
Unfortunately those at the lower end of the scale constitute a greater risk in the minds of lenders and are charged a higher rate of interest. It seems wholly unfair: the rich get charged less; and those most in need of credit more. But the way lenders see it, borrowers with lower credit scores are charged more to offset the risk to their investment.
Perhaps because of this, the idea of having a lower credit score carries a kind of stigma in some minds. But if you have a poor credit rating don't worry – you’re certainly not alone. People with a poor credit rating number in the tens of millions. In fact a recent survey revealed that nearly one in seven Americans have credit scores below 600; and a further one in ten rate between 600-650.
Having a bad credit rating is nothing to be ashamed of and can happen to anyone. Given time, patience and some work a bad credit rating can be changed for the better, meaning better rates for you.
There are many different ways you can go about getting a new credit card when your score isn't entirely up to scratch. Nevertheless, the first and most important thing to understand before you borrow any money is this: You must have sufficient income to pay your current bills and overheads PLUS your credit card repayment.
If you’re sure you’re ready for that sort of commitment, the secret behind successfully applying for a credit card is simple. Lenders love stability. The more routine you have in your life, the better the chances of them lending you money with a credit card, and the better the terms of the deal.
No one is going to take a chance on you if you don't have a steady and sufficient income. Most lenders want to see you at your current job for at least a year or more. The longer you work for the same employer the better the chances of you getting financed. Working in an industry where a certain amount of routine is par for the course is ideal. Think teaching, law or medicine. Lenders love doctors, lawyers and teachers because of the stability their jobs provide.
Credit card companies don’t like nomads. Ideally, they will want to see you at your current address for a year or more. Naturally, the longer at the same address the better.
If your credit is borderline, or if you simply have no credit you might have someone who is willing to act as the primary card-holder and have you as an additional name on the account. Of course, this person must have a good credit rating and meet the lender's credit-scoring criteria. But this can work well to give you a foot in the marketplace. If you’re an immigrant, but have followed a relative who has been in America for a few years longer, this can be a good strategy to help to start to build up a credit history. Once you’re ‘in’ the system, you’re underway.
Chances are, unfortunately, that if you do get a credit card with a low credit score, you won’t see a low interest rate. Merely paying off the minimum balance each month is also the most expensive way of borrowing money and will cost you a good deal of money over the length of the repayment. Aim to use your credit card for short term debt, and pay back the amount in full whenever you can. Some lenders will also put a low credit limit on your account – which is not always a bad thing.
Don’t be put off by any of this. If you take the long-term view, as far as your credit rating goes, borrowing money with a credit card and meeting the repayment deadlines will push it ever further up. You might not get the best lending terms first time around, but if you can prove that you’re a good borrower, you can expect a higher credit rating and more favorable terms on your credit card next time around.
Saturday, January 17, 2009
Have a .25 Charge on your Credit Card?
As the old saying goes, it's easier to steal $1 from a million people than to steal $1 million from one person. That may be the idea behind this current credit card mystery.
According to the Boston Globe, credit card customers across the country are complaining on internet boards about a mysterious 25-cent charge on their bills. The charge comes from a place called "Adele Services," based in Melville, New York. But according to the article, there is no such business listed under that name in Melville, or anywhere else in New York, for that matter.
Authorities think one of two things is happening:Identity thieves are checking to make sure the credit card is good to go for larger purchases or,more likely, they're looking to make money by stealing a small amount fom a big group of people.
Diabolical. Because I know I might never notice a 25-cent charge on my bill, and if i did, would I make the effort to call around and do someting abou it? Probably not. It's just a quarter, I'd tell myself. And that attitude is just what the thieves are banking on.
Check your bill and see if you've been hit. If so, don't let it slide. File a dispute with your credit card company and lodge a complaint with the Federal Trade Commission and the Internet Crime Complaint Center, which s run by the FBI in conjuction with other watchdog groups.
Considering your ccount number, along with your name and expiration date, have also likely been compromised, you might want to close your account and start a new one, just to be on the safe side.
According to the Boston Globe, credit card customers across the country are complaining on internet boards about a mysterious 25-cent charge on their bills. The charge comes from a place called "Adele Services," based in Melville, New York. But according to the article, there is no such business listed under that name in Melville, or anywhere else in New York, for that matter.
Authorities think one of two things is happening:Identity thieves are checking to make sure the credit card is good to go for larger purchases or,more likely, they're looking to make money by stealing a small amount fom a big group of people.
Diabolical. Because I know I might never notice a 25-cent charge on my bill, and if i did, would I make the effort to call around and do someting abou it? Probably not. It's just a quarter, I'd tell myself. And that attitude is just what the thieves are banking on.
Check your bill and see if you've been hit. If so, don't let it slide. File a dispute with your credit card company and lodge a complaint with the Federal Trade Commission and the Internet Crime Complaint Center, which s run by the FBI in conjuction with other watchdog groups.
Considering your ccount number, along with your name and expiration date, have also likely been compromised, you might want to close your account and start a new one, just to be on the safe side.
Tuesday, January 13, 2009
Choosing a Visa, American Express, Discover, or
Many American consumers have recently defaulted on their credit cards. Recent hurricanes along with high gas prices have affected consumers. However, having to pay more for gas should not be enough to push you over the edge, if you are using your credit card responsibly.
There are many excellent reasons to use credit cards. They eliminate the need to carry large amounts of cash, and many offer rewards points or cash back options. Discover Card in particular offers a well-known cash back program. Credit cards also come in handy during emergencies, as a convenient way to make unexpected purchases if you do not have cash saved up for such emergencies.
However, the bottom line is that if you can’t pay cash for a purchase, then you should not charge it. Credit cards are often used to buy luxuries that you can’t really afford. Being able to make the minimum payment is not the same as being able to afford the item.
If you have a balance on your credit card, particularly if you only make the minimum monthly payments, then you need to get control of your finances. First, read the fine print of your credit card agreement. If it has a yearly fee, cancel it. If it has an exorbitant interest rate, call the credit card company. Many will lower your rate just for asking. Next, compare the late fee, especially if you are often charged this fee because you pay late. By shopping around, you may be able to save money on the fees.
Penalty rates can be very high on credit cards. Over three quarters of credit card companies raise rates as a penalty for carrying a monthly balance and paying your bill late. However, there are still some companies who do not do this, so if you often carry a balance or are late paying, you should look for a credit card with lower interest or one which will not raise your rates. Another penalty fee to watch out for is the fee charged for going over the card’s credit limit or when you desire for the best card to transfer.
Another factor to consider when choosing a credit card is the minimum payment. Minimum payment amounts are very important when calculating the total amount of interest you’ll owe on the amounts you charge. If you’re charging items because you can’t afford them in full now, why would you want to pay interest on top of that amount? According to one study, paying the minimum payment on a $12,000 balance at 18 percent interest will take more than 60 years to pay off! And you’ll end up paying nearly three times your original balance because of all the interest charges. Many people only make the minimum payment each month, but it will take you many years to pay it off if you do that. As a result, new laws require that the minimum payment is at least 1 percent of the balance. If you paid that on the same $12,000 balance, it would cut the payment time to 30 years, and the interest down to less than $6,000.
You must understand how credit card fees if you want to use them responsibly and avoid falling into debt. Think wisely, and avoid using the card if you can.
There are many excellent reasons to use credit cards. They eliminate the need to carry large amounts of cash, and many offer rewards points or cash back options. Discover Card in particular offers a well-known cash back program. Credit cards also come in handy during emergencies, as a convenient way to make unexpected purchases if you do not have cash saved up for such emergencies.
However, the bottom line is that if you can’t pay cash for a purchase, then you should not charge it. Credit cards are often used to buy luxuries that you can’t really afford. Being able to make the minimum payment is not the same as being able to afford the item.
If you have a balance on your credit card, particularly if you only make the minimum monthly payments, then you need to get control of your finances. First, read the fine print of your credit card agreement. If it has a yearly fee, cancel it. If it has an exorbitant interest rate, call the credit card company. Many will lower your rate just for asking. Next, compare the late fee, especially if you are often charged this fee because you pay late. By shopping around, you may be able to save money on the fees.
Penalty rates can be very high on credit cards. Over three quarters of credit card companies raise rates as a penalty for carrying a monthly balance and paying your bill late. However, there are still some companies who do not do this, so if you often carry a balance or are late paying, you should look for a credit card with lower interest or one which will not raise your rates. Another penalty fee to watch out for is the fee charged for going over the card’s credit limit or when you desire for the best card to transfer.
Another factor to consider when choosing a credit card is the minimum payment. Minimum payment amounts are very important when calculating the total amount of interest you’ll owe on the amounts you charge. If you’re charging items because you can’t afford them in full now, why would you want to pay interest on top of that amount? According to one study, paying the minimum payment on a $12,000 balance at 18 percent interest will take more than 60 years to pay off! And you’ll end up paying nearly three times your original balance because of all the interest charges. Many people only make the minimum payment each month, but it will take you many years to pay it off if you do that. As a result, new laws require that the minimum payment is at least 1 percent of the balance. If you paid that on the same $12,000 balance, it would cut the payment time to 30 years, and the interest down to less than $6,000.
You must understand how credit card fees if you want to use them responsibly and avoid falling into debt. Think wisely, and avoid using the card if you can.
Monday, January 12, 2009
Invest Or Pay Off Debt First?
If you receive a windfall of cash (such as a tax refund or collection of a debt from a friend), you may face a common dilemma: Invest, pay off debt, or spend. (Spending is not considered as an option here.) If better personal budgeting has helped you save an additional amount every month, a debt repayment plan may be preferable to saving until most of the debt is gone.
Generally, paying off or paying down a debt that has a higher interest rate is preferable to making an investment that earns a lower interest rate or rate of return. To make a fair comparison, you need to calculate the after-tax interest rate on your debt and nvestments. If your investment is not held in an interest-earning account (such as a money market or savings account, CD, or money market mutual fund), calculate the investment's after-tax return.
If you are paying off a credit card or auto loan, you can use the APR as the effective interest rate if available, or use the stated interest rate for sake of simplicity. If you are paying off a mortgage, home equity loan, or student loan, start by subtracting your income tax bracket from 1.0.
For example, if you are in the 25% tax bracket for 2008, you would have 0.75 (1.0-0.25). Then, multiply 0.75 by the loan interest rate. The result is your after-tax interest rate on tax-deductible debt. If you have a mortgage loan of 8% and are in the 25% tax bracket, your after-tax interest rate is 6%.
If you plan to invest in a stock, bond, or mutual fund that invests in any of these types of securities, you should have an idea of the investment's expected return. For example, if you invest in a mutual fund that earns an annual rate of return of 10%, you may decide to use that return as our expected return. Use the same calculation rule to calculate the after-tax return on investment (which is based on expected return).
You should calculate the after-tax interest rate or return for investments held in taxable accounts. For example, if a taxable investment earns a 10% return and you are in the 25% tax bracket, your after-tax return is 7.5% [(1.0-0.25)*.10]. (Investments in tax-advantaged accounts are not taxed until you begin to take money out, which generally occurs after you retire. If using a tax-advantaged account, the interest rate earned on the account is equal to the after-tax rate to keep things simpler.)
In most cases, the APR on your credit card debt or an auto loan is higher than the after-tax interest rate or after-tax return on an investment. These types of consumer debts, particularly credit card debt, since it is unsecured credit, are among the most expensive. As a result, paying off a credit card is almost always a better deal than investing. While some investors use their credit cards to raise funds for speculative investing, this kind of leveraging is an extremely risky practice and should be avoided.
Paying off debt is sometimes a painful experience. Not only do you miss a chance to spend, you also pass opportunities to save or invest. However, if you've improved your budgeting efforts and have been able to save extra money, you will improve your personal cash flow further by paying off high-interest debt. The basic relationship — pay off debt that has a higher interest rate than what you earn on your investments — is a practical step in the right direction.
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.
Generally, paying off or paying down a debt that has a higher interest rate is preferable to making an investment that earns a lower interest rate or rate of return. To make a fair comparison, you need to calculate the after-tax interest rate on your debt and nvestments. If your investment is not held in an interest-earning account (such as a money market or savings account, CD, or money market mutual fund), calculate the investment's after-tax return.
If you are paying off a credit card or auto loan, you can use the APR as the effective interest rate if available, or use the stated interest rate for sake of simplicity. If you are paying off a mortgage, home equity loan, or student loan, start by subtracting your income tax bracket from 1.0.
For example, if you are in the 25% tax bracket for 2008, you would have 0.75 (1.0-0.25). Then, multiply 0.75 by the loan interest rate. The result is your after-tax interest rate on tax-deductible debt. If you have a mortgage loan of 8% and are in the 25% tax bracket, your after-tax interest rate is 6%.
If you plan to invest in a stock, bond, or mutual fund that invests in any of these types of securities, you should have an idea of the investment's expected return. For example, if you invest in a mutual fund that earns an annual rate of return of 10%, you may decide to use that return as our expected return. Use the same calculation rule to calculate the after-tax return on investment (which is based on expected return).
You should calculate the after-tax interest rate or return for investments held in taxable accounts. For example, if a taxable investment earns a 10% return and you are in the 25% tax bracket, your after-tax return is 7.5% [(1.0-0.25)*.10]. (Investments in tax-advantaged accounts are not taxed until you begin to take money out, which generally occurs after you retire. If using a tax-advantaged account, the interest rate earned on the account is equal to the after-tax rate to keep things simpler.)
In most cases, the APR on your credit card debt or an auto loan is higher than the after-tax interest rate or after-tax return on an investment. These types of consumer debts, particularly credit card debt, since it is unsecured credit, are among the most expensive. As a result, paying off a credit card is almost always a better deal than investing. While some investors use their credit cards to raise funds for speculative investing, this kind of leveraging is an extremely risky practice and should be avoided.
Paying off debt is sometimes a painful experience. Not only do you miss a chance to spend, you also pass opportunities to save or invest. However, if you've improved your budgeting efforts and have been able to save extra money, you will improve your personal cash flow further by paying off high-interest debt. The basic relationship — pay off debt that has a higher interest rate than what you earn on your investments — is a practical step in the right direction.
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.
Friday, January 9, 2009
Your Debt To Income Ratio
To stay out of debt, you must spend less money than you earn. Implementing this financial plan is often more difficult than it would seem. Your debt to income ratio is an important part of your overall credit history. If you spend more money than you earn, your debt to income ratio will be high, making it hard to finance a home or make major purchases. There are two basic factors are used in calculating your debt to income ratio - your net worth and your total debt. There are standard guidelines used in the credit industry to determine if your debt to income ratio is too high. The standard may be a bit low due to the fact that many have an acceptable debt to income ratio but still struggle to pay monthly expenses.
Your total net worth includes your monthly net pay, overtime and bonuses, and any other annual income. Your total debt includes your mortgage, other loan payments or revolving accounts, car payment, credit cards, and any child support you pay. If you divide you total monthly debt payments by your monthly income, you have your debt to income ratio. In the eyes of a creditor, if your debt to income ratio is lower than 36% you are in good financial shape. However, your personal situation, your unique expenses, and your number of dependants will determine how much debt you can reasonably pay each month. If your debt to income ratio is less than 30 percent, you are in excellent financial condition; 30-36% - you will have no trouble with lenders, but should work to bring this number down to 30 or less; 36-40% - you will most likely be able to get a loan, but you may have trouble meeting your monthly obligations; 40 percent or higher - you will need to evaluate your finances and work towards eliminating debts.
Your credit card debt plays a major role in determining your debt to income ratio. The amount you owe on your credit cards has a direct bearing on your credit score. If your debt exceeds your income, your credit score will drop. Many factors go into determining your credit score, all of which are indicators of your overall financial health. Lowering credit card debt is one of the best ways to improve your credit score and your debt to income ratio. The average American has over $8000 in credit card debt. If you are paying the minimum payments each month, this still takes a big bite out of your income. Even if your credit history is excellent, with very few or no late payments, if you have too much debt, you could be denied a loan.
Take control of your credit score by lowering your credit card debt or eliminating it all together. Your credit score will rise and you will lower your debt to income ratio. If you plan to apply for a loan, purchase a new home, or want to buy a new car, you must make sure your level of debt does not exceed more than 36% of your income. In addition, if you have several credit cards with very low or zero balances, you would benefit by closing those accounts and transferring any outstanding balances to a credit card with a low interest rate. Some lenders will calculate your debt to income ratio based on the amount of credit that is available to you. If you have several dependants, you may want to lower your debt to income ratio to around 20% to ensure that you can pay your monthly debt comfortably.
Your total net worth includes your monthly net pay, overtime and bonuses, and any other annual income. Your total debt includes your mortgage, other loan payments or revolving accounts, car payment, credit cards, and any child support you pay. If you divide you total monthly debt payments by your monthly income, you have your debt to income ratio. In the eyes of a creditor, if your debt to income ratio is lower than 36% you are in good financial shape. However, your personal situation, your unique expenses, and your number of dependants will determine how much debt you can reasonably pay each month. If your debt to income ratio is less than 30 percent, you are in excellent financial condition; 30-36% - you will have no trouble with lenders, but should work to bring this number down to 30 or less; 36-40% - you will most likely be able to get a loan, but you may have trouble meeting your monthly obligations; 40 percent or higher - you will need to evaluate your finances and work towards eliminating debts.
Your credit card debt plays a major role in determining your debt to income ratio. The amount you owe on your credit cards has a direct bearing on your credit score. If your debt exceeds your income, your credit score will drop. Many factors go into determining your credit score, all of which are indicators of your overall financial health. Lowering credit card debt is one of the best ways to improve your credit score and your debt to income ratio. The average American has over $8000 in credit card debt. If you are paying the minimum payments each month, this still takes a big bite out of your income. Even if your credit history is excellent, with very few or no late payments, if you have too much debt, you could be denied a loan.
Take control of your credit score by lowering your credit card debt or eliminating it all together. Your credit score will rise and you will lower your debt to income ratio. If you plan to apply for a loan, purchase a new home, or want to buy a new car, you must make sure your level of debt does not exceed more than 36% of your income. In addition, if you have several credit cards with very low or zero balances, you would benefit by closing those accounts and transferring any outstanding balances to a credit card with a low interest rate. Some lenders will calculate your debt to income ratio based on the amount of credit that is available to you. If you have several dependants, you may want to lower your debt to income ratio to around 20% to ensure that you can pay your monthly debt comfortably.
Tuesday, January 6, 2009
Managing Credit Card Debt
Have you found yourself falling into a slump
with credit card debt that you are unsure of how to manage it? If so, then you should know that you are really not alone in this feeling. Many people, both young adults and the older generation will fall into credit card debt that they are not quite sure how to deal with.
What you need to know is that even though your credit card debt can be a bit scary, there are usually ways that you can fix it and get yourself going on the right track to pay off your credit card debt as well as work on lifting your credit score. If you have credit card debt that is quite a bit higher than you feel you can manage on your own, there are several credit counseling agencies that may be able to help you out a bit. There is not necessarily a need to enroll in their services, but you may just want to get some sort of counseling advice and possibly put yourself on a budget so that you can begin to manage your bills.
Organize Your Credit Card Debt By Priority
To get organized with your credit card bills and to begin digging your way out of debt, the first step would have to be laying out all of your credit card bills. Take note of how many accounts you have, what the amount of credit used on each account is, plus the minimum payment that you owe for each card every month. It is very important that you always make at least your minimum payment every single month for every single account that you have. One missed payment can do quite a bit of damage to your credit report.
After you have gone through and taken notes of all of your amounts and so on, you can then go through and take a look at all of your incoming funds that you can spend on your credit card payments. You are sort of working out a budget for paying on your cards by doing this. Figure out the total amount of all of your minimum payments and see what is left over after that. Whatever the extra month amount it, you are best off to apply it every single month to one specific account.
By taking this step and sending more money to one of your accounts, you will be able to possibly pay off that one card much faster. If you pay off the card in a decent amount of time, you can then use those funds that would have been applied to that credit card to another and so on. You would be amazed at just how well this method can work to manage credit card debt.
with credit card debt that you are unsure of how to manage it? If so, then you should know that you are really not alone in this feeling. Many people, both young adults and the older generation will fall into credit card debt that they are not quite sure how to deal with.
What you need to know is that even though your credit card debt can be a bit scary, there are usually ways that you can fix it and get yourself going on the right track to pay off your credit card debt as well as work on lifting your credit score. If you have credit card debt that is quite a bit higher than you feel you can manage on your own, there are several credit counseling agencies that may be able to help you out a bit. There is not necessarily a need to enroll in their services, but you may just want to get some sort of counseling advice and possibly put yourself on a budget so that you can begin to manage your bills.
Organize Your Credit Card Debt By Priority
To get organized with your credit card bills and to begin digging your way out of debt, the first step would have to be laying out all of your credit card bills. Take note of how many accounts you have, what the amount of credit used on each account is, plus the minimum payment that you owe for each card every month. It is very important that you always make at least your minimum payment every single month for every single account that you have. One missed payment can do quite a bit of damage to your credit report.
After you have gone through and taken notes of all of your amounts and so on, you can then go through and take a look at all of your incoming funds that you can spend on your credit card payments. You are sort of working out a budget for paying on your cards by doing this. Figure out the total amount of all of your minimum payments and see what is left over after that. Whatever the extra month amount it, you are best off to apply it every single month to one specific account.
By taking this step and sending more money to one of your accounts, you will be able to possibly pay off that one card much faster. If you pay off the card in a decent amount of time, you can then use those funds that would have been applied to that credit card to another and so on. You would be amazed at just how well this method can work to manage credit card debt.
Monday, January 5, 2009
10 Credit Myths
This is one of my most favorite articles that I have written because it addresses so many questions that people have about credit. I love watching the eyes of my clients widen when they find out the truth about some of these most common myths.
A word of warning before we get started… You are about to hear some things that will most likely be the exact opposite of what you have been told. Keep in mind that credit issues are some of the most misunderstood of all financial topics, and there are many professionals in the financial industry giving advice to their clients, who do not really understand credit themselves. On that note, here are the greatest myths about credit…
Myth 1: Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.
This is simply not true. In fact, by paying off an old collection account, you can actually lower your credit scores. The reason for this is because more recent negative items will hurt your score more than older negative items. If you pay off an old collection account, not only will the collection account remain on your reports as a paid collection, but it will now show a current date, and cost your more points. I am not suggesting that you should not pay off your delinquent accounts, only that you need to understand the consequences so that you can factor that into your decision.
Myth 2: Paying my full credit card balance every month will improve my credit scores.
Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.
Myth 3: Credit repair is illegal.
Not only is this false, but your right to repair your credit is protected by federal law. The Fair Credit Reporting Act (FCRA) protects consumers from inaccurate reporting, as well as issues surrounding identity theft. As a consumer, you have the right to repair your own credit, as well as hire anyone you choose to do it for you.
Myth 4: Enrolling in a Credit Counseling program will improve my credit.
We have all seen the statements made by credit counseling companies that state that their program will improve your credit. I can tell you that this is false. When you enroll into a credit counseling program, one of the first things that happens is a statement is inserted into your credit reports for each account included in the program. This statement will say something like “payments made through credit counseling”, or “client in CCCS”. This statement itself may not cost you any points; however it is looked at by the lending industry as very negative. It is like putting a sign on your forehead that says, “I can’t pay my bills!” In addition, most credit counseling programs will make your payments late, and this will then cause you to have late-pays, which will cost you many points on your credit.
Myth 5: By law, negative items on my credit have to remain for 7 years.
This is also false. There is no law that dictates the duration that an item must remain on your credit reports. The only thing that dictates that an item must remain on your credit report is that it can be proven to be 100% true and accurate.
Myth 6: Making a lot of money will give you good credit.
Making a lot of money really has very little to do with your credit directly. What determines your credit is your payment history, account balances, your open accounts, the type of accounts, etc.
Myth 7: As long as I have never been late on a payment, I will have great credit.
While never being late is an important part, it is only 35% of your credit scores. In order to have great credit, you need to focus on all the factors that make up your credit scores.
Myth 8: Your credit reports from all 3 major credit bureaus will be the same.
This is not true. In fact, most of the time, all 3 of your credit reports will differ from one another. The reason for this is that each of the credit bureaus is a separate independent company, and the processes at each are different. Also, some creditors may only report to 1 or 2 bureaus, but not all 3. In my experience, your reports will very rarely be exactly the same.
Myth 9: Once you are married, you and your spouse share the same credit.
False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.
Myth 10: Closing credit card accounts will increase your credit scores.
This is one of the biggest surprises that I see happen to people all the time. You go to your mortgage lender and they instruct you to close some accounts in order to qualify for a loan. You do as you are told, but only to see your scores plummet almost immediately; sometimes by more than 100 points. What happened? The reason for the drop was because you just closed some of your oldest and most valuable accounts as far as your credit scores were concerned. Remember, the longer you have had an account in good standing, the more positive points it will provide. It is not advised to close a long-standing account unless you have good reason.
Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.
A word of warning before we get started… You are about to hear some things that will most likely be the exact opposite of what you have been told. Keep in mind that credit issues are some of the most misunderstood of all financial topics, and there are many professionals in the financial industry giving advice to their clients, who do not really understand credit themselves. On that note, here are the greatest myths about credit…
Myth 1: Paying off (or “settling”) late payments, tax liens, collections or judgments will remove them from your credit reports.
This is simply not true. In fact, by paying off an old collection account, you can actually lower your credit scores. The reason for this is because more recent negative items will hurt your score more than older negative items. If you pay off an old collection account, not only will the collection account remain on your reports as a paid collection, but it will now show a current date, and cost your more points. I am not suggesting that you should not pay off your delinquent accounts, only that you need to understand the consequences so that you can factor that into your decision.
Myth 2: Paying my full credit card balance every month will improve my credit scores.
Keep in mind that the credit system is designed by the creditors, to help them determine if you are a good credit risk, and if you are an optimal credit user (one who uses the system in such a way that it will generate revenue for the creditors). By paying off your accounts every month, you are not establishing a history of optimal credit usage. What your creditors want to see, is someone who pays slightly more than their minimum monthly payment every month, on time, with only occasional balance pay-downs. This behavior will optimize your credit scores.
Myth 3: Credit repair is illegal.
Not only is this false, but your right to repair your credit is protected by federal law. The Fair Credit Reporting Act (FCRA) protects consumers from inaccurate reporting, as well as issues surrounding identity theft. As a consumer, you have the right to repair your own credit, as well as hire anyone you choose to do it for you.
Myth 4: Enrolling in a Credit Counseling program will improve my credit.
We have all seen the statements made by credit counseling companies that state that their program will improve your credit. I can tell you that this is false. When you enroll into a credit counseling program, one of the first things that happens is a statement is inserted into your credit reports for each account included in the program. This statement will say something like “payments made through credit counseling”, or “client in CCCS”. This statement itself may not cost you any points; however it is looked at by the lending industry as very negative. It is like putting a sign on your forehead that says, “I can’t pay my bills!” In addition, most credit counseling programs will make your payments late, and this will then cause you to have late-pays, which will cost you many points on your credit.
Myth 5: By law, negative items on my credit have to remain for 7 years.
This is also false. There is no law that dictates the duration that an item must remain on your credit reports. The only thing that dictates that an item must remain on your credit report is that it can be proven to be 100% true and accurate.
Myth 6: Making a lot of money will give you good credit.
Making a lot of money really has very little to do with your credit directly. What determines your credit is your payment history, account balances, your open accounts, the type of accounts, etc.
Myth 7: As long as I have never been late on a payment, I will have great credit.
While never being late is an important part, it is only 35% of your credit scores. In order to have great credit, you need to focus on all the factors that make up your credit scores.
Myth 8: Your credit reports from all 3 major credit bureaus will be the same.
This is not true. In fact, most of the time, all 3 of your credit reports will differ from one another. The reason for this is that each of the credit bureaus is a separate independent company, and the processes at each are different. Also, some creditors may only report to 1 or 2 bureaus, but not all 3. In my experience, your reports will very rarely be exactly the same.
Myth 9: Once you are married, you and your spouse share the same credit.
False! This is something that many believe, but it is absolutely not true. Every individual has their own unique credit reports. You may share some credit items with your spouse if you have joint accounts.
Myth 10: Closing credit card accounts will increase your credit scores.
This is one of the biggest surprises that I see happen to people all the time. You go to your mortgage lender and they instruct you to close some accounts in order to qualify for a loan. You do as you are told, but only to see your scores plummet almost immediately; sometimes by more than 100 points. What happened? The reason for the drop was because you just closed some of your oldest and most valuable accounts as far as your credit scores were concerned. Remember, the longer you have had an account in good standing, the more positive points it will provide. It is not advised to close a long-standing account unless you have good reason.
Now that you are armed with this powerful knowledge, you can get on the road to optimizing your credit today.
Sunday, January 4, 2009
Disposable Credit Card Numbers
Disposable diapers, disposable cameras- and now… disposable credit card numbers? They’re actually referred to within the industry as virtual credit card numbers, and are currently being offered through most major credit card issuers.
Virtual credit card numbers are single-use numbers that expire within a month or two of issue, and are used for shopping online in place of the number that’s actually on your credit card. What’s the point? The number is only good at the one web site where you make your purchase, and only for a limit period of time- so if hackers have obtained your credit card number during an online transaction, the next time they go to use it, it will not work.
When a customer receives their credit card statement after shopping with virtual credit card numbers, the purchases show up on the statement exactly like any other purchase. Some card issuers will provide the virtual number used to make the purchase along side the charge, for reference purposes.
Why Virtual Credit Card Numbers?
One of the main reasons why some people choose not to shop online is because of their fear of credit card theft and identity fraud. The potential for personal information to be found online is a real concern- and is proven by a survey in September 2002, where over 7 percent of online shoppers surveyed claimed to be victims of credit card fraud.
Even though almost all credit card issuers promise a zero liability policy for unauthorized charges and online purchases, consumers are still concerned because of the potential for further damage. Sometimes it is difficult to get errors removed from a credit report, for example, even after being the victim of identity theft. Using virtual credit card numbers can eliminate the potential for hackers to use the card data to make purchases and discover more information about a consumer.
Disadvantages of Virtual Credit Card Numbers
While virtual credit card numbers offer many advantages over shopping online with your regular credit card number, there are also some instances when using a virtual card number has disadvantages.
When you purchase theater tickets or airline, hotel or rental car reservations with a credit card number online, you are supposed to provide that credit card when you go to pick up your tickets or when you check into the hotel or get your rental car. If you’ve used a virtual number, you won’t have the ability to hand the clerk the credit card with a matching card number. Recurring expenses are also a hassle using a virtual credit card number. By the time the next purchase period comes around, your number is likely to have expired.
Take Precautions Against Identity Theft & Fraud
You can take some precautions to help minimize your potential to be a victim of online fraud due to shopping online- with or without having a virtual credit card number.
Before making a purchase, make sure the website uses a secure or encrypted site to handle the transaction of your payment information. Most sites use the SSL (secure socket layer), and is recognized easily by a url beginning with ‘https’ instead of ‘http’, and often by a little locket symbol on the screen.
Always monitor your credit card statement and make sure all transactions were authorized. If you suspect there is a problem, contact your credit card company immediately.
Use a paper shredder to destroy credit statements, pre-approved credit card others, bills and anything else containing personal information before you throw them away. While many identity thieves are high-tech and use the internet to find their victims- some still dive into dumpsters to get their information!
Virtual credit card numbers are single-use numbers that expire within a month or two of issue, and are used for shopping online in place of the number that’s actually on your credit card. What’s the point? The number is only good at the one web site where you make your purchase, and only for a limit period of time- so if hackers have obtained your credit card number during an online transaction, the next time they go to use it, it will not work.
When a customer receives their credit card statement after shopping with virtual credit card numbers, the purchases show up on the statement exactly like any other purchase. Some card issuers will provide the virtual number used to make the purchase along side the charge, for reference purposes.
Why Virtual Credit Card Numbers?
One of the main reasons why some people choose not to shop online is because of their fear of credit card theft and identity fraud. The potential for personal information to be found online is a real concern- and is proven by a survey in September 2002, where over 7 percent of online shoppers surveyed claimed to be victims of credit card fraud.
Even though almost all credit card issuers promise a zero liability policy for unauthorized charges and online purchases, consumers are still concerned because of the potential for further damage. Sometimes it is difficult to get errors removed from a credit report, for example, even after being the victim of identity theft. Using virtual credit card numbers can eliminate the potential for hackers to use the card data to make purchases and discover more information about a consumer.
Disadvantages of Virtual Credit Card Numbers
While virtual credit card numbers offer many advantages over shopping online with your regular credit card number, there are also some instances when using a virtual card number has disadvantages.
When you purchase theater tickets or airline, hotel or rental car reservations with a credit card number online, you are supposed to provide that credit card when you go to pick up your tickets or when you check into the hotel or get your rental car. If you’ve used a virtual number, you won’t have the ability to hand the clerk the credit card with a matching card number. Recurring expenses are also a hassle using a virtual credit card number. By the time the next purchase period comes around, your number is likely to have expired.
Take Precautions Against Identity Theft & Fraud
You can take some precautions to help minimize your potential to be a victim of online fraud due to shopping online- with or without having a virtual credit card number.
Before making a purchase, make sure the website uses a secure or encrypted site to handle the transaction of your payment information. Most sites use the SSL (secure socket layer), and is recognized easily by a url beginning with ‘https’ instead of ‘http’, and often by a little locket symbol on the screen.
Always monitor your credit card statement and make sure all transactions were authorized. If you suspect there is a problem, contact your credit card company immediately.
Use a paper shredder to destroy credit statements, pre-approved credit card others, bills and anything else containing personal information before you throw them away. While many identity thieves are high-tech and use the internet to find their victims- some still dive into dumpsters to get their information!
Subscribe to:
Posts (Atom)
