Money makes the world go ’round, but credit stops yours with debt. The only good things about credit cards, is to build credit when you do not have any and for emergency use – otherwise just don’t do it. Credit card companies try to entice you by introductory interest rates, low APR (Annual Percentage Rate) and no balance transfer fees. But, just as an auto loan you end up paying more in the long run. Credit Card companies are just like every other business; they are trying to make money. The way they make money, is off of you, you use the credit they have given you to buy things you normally couldn’t afford; then, you make payments to them. Well the payments you are making are not really paying off the balance you occurred – it is paying their interest rates.
That big screen television you just bought could stop working in two years and you may still be paying for it. You have probably heard it a million times over; cancel your credit cards to avoid temptation. Well, this is not a good idea, when it comes to your credit report. In the world today your credit report (credit history) and credit rating is your life’s blood. Just about anything financial is based on your credit rating and history. Whether you get that loan, mortgage or dare I say it, credit card is based on your credit worthiness. Have you ever been thirty days late on a payment or do you have to much credit in use? Well these things bring down your credit score, and banks look at that to see if you will actually payback what they loan you. If you are late on one payment, the credit card company can charge you a late fee and increase the APR they are charging you. (see Cafe Credit website to get more tips on how smartly use your credit card and prevent the bad credits.)
Having a lot of credit cards is not the problem; it is how much you owe on each card compared to how much the credit limit is. Let’s say you have a credit card with a $500 dollar limit, and the amount you have charged is $450, well this is going to bring your credit score down. To get your credit score higher you must have no more than thirty percent of the credit limit in use, so using our example again, you have a credit card with a $500 dollar limit, and you keep the balance below $150 dollars – your credit score should be fine. Most people do not fall in to this example, because we use what we have. Right?
There are many programs advertised to help get you out of debt, well most of these are scams. Before you sign up with one of these programs you might want to do a little research first, go to the Federal Trade Commission’s website, the Better Business Bureau website and there is this great site call Rip-off Report. Filing Bankruptcy is a last resort, so do not contemplate this idea – until you have covered all your bases. Most bad items on your credit report will follow you for seven years; well Bankruptcy follows you for ten years, so think about very carefully. And, another thing to remember is that Bankruptcy does not mean you do not have to pay your creditors back! Debt Consolidation loans are another option people consider, but most debt consolidation loans have a high APR, and once you consolidate your debt you must close all your credit card accounts. Remember, a debt consolidation loan may or may not help you, but closing all your credit cards will not help your Credit Rating.
The best way to figure out your situation is to do a little reading. First, get a copy of your credit report; you are entitled to one free credit report a year. If you have been denied credit, you can request a credit report at that time and a detailed reason why from the company that denied you. To get your free credit report there is a website called AnnualCreditReport. Second, gather the most recent copies of your credit card statements, and while you’re at it – see if you can find old ones close to the time that you received the credit cards. What you want to do is peruse your credit report for any discrepancies, check for payments made thirty days late, and if any items are old enough that they should be dropping off. An issue I have encountered is, make sure everything on your report is actually yours!
Credit reporting agencies do not check credit reports one by one, and if someone else has a similar name to yours their issues may be on your credit report. For any discrepancies or issues with your credit report, you will need to file a dispute with the credit reporting agency; this information should be included on your credit report. Next, look at the amount you owe on your credit cards, and check the APR on your credit card statements. Compare the APR on your current statement to one of your past statements, do you see any changes?
Well if you do, such as the APR as increased, inquire to your credit card company, why the change was made? And, while you are at it, ask them for a lower APR – never hurts to try. Now, find which credit card has the highest interest rate. There are several things you can do, double your payments on the credit card with the highest interest rate or find a new credit card with a lower interest rate and free balance transfers. Only consider the later if you have a good credit score, otherwise, you are going to fall into the same predicament. While trying to pay down your cards, do not use them, put the cards in your lockbox or cut them up. Keep one card in case of emergencies.
It might be hard for you to stop using your credit cards, and budgeting out enough money to make payments higher than the minimum, but it will help you in the long run. Not only by increasing your crediting rating, but reducing your debt and being able to stop worrying about money all the time. Great ways to put a dent in your debt is to use your tax refunds, stimulus rebates, pay more if you get a raise through your employer, sell items you have no use for anymore, stop smoking (hard one!), and if you can save money in any other way – put it towards your debt. I am not a financial expert; I have learned all this information on my own. The more research you do, you will be all the more capable of getting your finances in order.