Credit Cards- The Do's and Don'ts

Most of us aren't born knowing how to use credit cards. Still, it’s important to learn the rules of the credit card game – preferably before you start playing. These do’s and don’ts of credit card usage encourage healthy spending habits for new and experienced credit card users alike.

Don't  

• Use your credit card to make everyday purchases. Items like food, clothing, and gas shouldn't be purchased with a credit card. Using your credit card as a substitute for cash is a habit that can quickly lead to debt. For ordinary puchases, leave your credit card in your wallet and use cash or debit card instead.
• Get into the habit of making minimum-only payments. Making only the minimum payment each month increases the amount of time it will take to pay off your debt. It also increases the amount of interest you end up paying. To pay your debts off quicker and cheaper, you should pay as much as you can on your balance each month.
Five Reasons to Pay More Than the Minimum
• Use your credit card to buy things you can’t afford. Living a borrowed lifestyle is the quickest way to get into debt. If you can’t afford a purchase today, chances are you won’t be able to afford it tomorrow, or even next month.
  Spending Habits That Lead To Debt
• Close out a credit card without knowing how your credit will be impacted. There are times when closing a credit card can hurt your credit score. Avoid closing cards that still have a balance or those that make up a significant amount of your credit history.
  Five Credit Cards You Should Never Close

Do  

• Make wise decisions about purchasing items you need versus those you simply want. We’ve all used the word “need” to describe something we really just wanted badly. Using your credit card responsibly means recognizing which things you need and which you just want.
• Let your creditor know in advance if you won’t be able to make your monthly payment on time. The worst thing you can do is simply forgo your credit card payment, no matter the reason. Most creditors will assist you if you let them know before you miss your payment. Simply call your creditor, briefly explain the situation, and ask that any late fees be waived.
  When You Can't Make Your Payment
• Stay within 30% of your credit limit. A large part of your credit score considers the amount of debt you have. Keeping your balances low helps you maintain a good credit score. Not only that, lower balances are easier to manage than those that are higher.
  How Your Credit Score Is Calculated
• Negotiate a lower interest rate. Especially if your current rate is higher than offers you receive. Your interest rate determines how much you pay for carrying a balance on your credit card. Evaluate the interest rate on your credit card periodically to be sure you are getting the best deal possible.
  How to Negotiate a Lower Interest Rate

Article found on http://credit.about.com/od/creditcardbasics/a/dosandonts.htm

How to Eliminate Credit Card Debt

Credit card debt is a major problem in this country. While not everyone has a credit card, those that do typically carry a balance. The interest rate on a credit card balance is usually between 10-30% APR. These high interest rates make it difficult for people to pay down their debt -- especially if only making the minimum payment. In fact, just making minimum payments can make even the smallest balance over a decade to pay off and thousands of dollars in finance charges. It’s no wonder getting out of debt seems so hard.
Fortunately, you can get out of debt. If you follow a few basic steps and put a plan in place, you can work to pay off your debt sooner, with less interest, and improve your credit score in the process.

1. First, list each of your credit cards. You’ll want to include the outstanding balance, interest rate, and minimum payment. This information can easily be found on your last monthly statement.
   
2. Order the cards on the list so that the credit card with the highest interest rate is at the top, and the lowest is at the bottom.
   
3. Total the minimum payments.
   
4. The total monthly minimum is your absolute lowest monthly payment, but remember, we want to pay more than the minimum in order to repay the debt quickly. So, take a look at your budget and see how much extra you can come up with each month in addition to the minimum. Whether it’s an extra $20 a month or $100, every little bit helps.
   
5. As your payments come due, pay the minimum on each card except for the one at the top of your list. Remember, that one has the highest interest rate and it costing you the most money by maintaining a balance. So whatever additional money you budgeted in the previous step, apply that to that card.
   
6. Continue this process until the first card is paid off. When that card is paid off, continue with the minimum payments on the other cards, but now take the amount you were paying on the first card in addition to the minimum payment and apply it to the second card on your list.
   
7. Repeat this process until all cards are paid off.

Why This Works

To understand why a relatively simple process works it’s important to understand how minimum payments work. Minimum payments are calculated as a percentage of the outstanding balance. That means as your card balance slowly decreases, so does your minimum payment. This is why it can take ten years or more to pay off even a small balance if you only make the minimum payment each month.
With this system, your monthly payment is remaining constant regardless of your balance. So each month your required minimum payment may go down, but you’re ignoring that and by doing so you apply more and more money to your principal as time goes on, thus accelerating your debt repayment.
Starting with the highest interest rate ensures you’re targeting the most costly credit up front to minimize the total amount of interest you pay.

A Few More Tips

While this payment strategy will help you get out of debt, you can potentially make things go even faster with a few other tips. First, call your credit card company and ask about getting your rate lowered. This won’t always work, but if you have been on time with your payments and a decent credit score, they may be willing to work with you. It doesn’t hurt to try and it doesn’t cost anything. The worst they can do is say no.
Don’t forget about balance transfers. Again, it isn’t always easy to get credit and the balance transfer deal may not be the best, but if you can find a way to transfer the balance from a card with a 25% APR to a card with an 18% APR, that’s still something. There may be some special 0% offers as well, but they are harder to come by these days and the hidden fees may outweigh the benefit.
Finally, keep in mind that this process still takes time. There is no magic method of paying off debt, so realize that it will still take months or even a few years to become completely debt-free. But what we're doing is putting a process in place to make sure that you can get out of debt as soon as possible. You can speed up the process if you continue to pay even more money towards your debt as your budget allows.

Article found about.com

It's Time to Develop a Budget

You ask people about the importance of developing a budget and most will tell you that it should be done. Yet very few people do it. Why?

Most people are simply not inclined to use spreadsheets, balance checkbooks or lay out a formal budget. There are many reasons for it, but the most important is that we associate “preparing a home budget” with “tedious, boring, complicated and taking too much time”. No wonder we don’t do it!

Making the effort to outline their expenses against their income can have huge rewards. In fact, it’s critical if you want to get out of debt. You need to know where your money is going. You can also identify trivial expenses that when cut out, can leave some money to pay off your debts.

Your budget should include your monthly income, and everything you spend your money on on any given month. Yes, you need to keep track, and we cannot stress it enough. You should also leave room for unexpected expenses that may come up.

You can use spreadsheet software, either from Microsoft ( MS Excel) or a free one from Open Office.org or Google Docs. If however, you don’t feel comfortable using spreadsheet software you can just use a legal-sized pad and a calculator. You don’t really need to get fancy here, the main idea is to know where your money is going.

If you decide to do your own spreadsheet on a piece of paper, divide the page into two columns. In one, list income; on the other one write down all monthly expenses. You may want to refer to your bank statements so you don’t miss any expenses.

In the expenses column make sure you include all your monthly bills like water, phone, gas, car payment, cell phone, groceries, cable, tuition, etc. Then add at least 10% for unexpected expenses, if you can.

Make it a priority to get out of debt. Set a realistic goal to get out of debt and then start saving the money you are now paying on interest. You can live the life of your dreams if you decide to pay off your debts and start saving towards your retirement. You can do it, it takes knowledge (look at the Debt into Wealth program, it’s a must-have to get out of debt in record time), perseverance and discipline.

Don’t listen to people who are deep in debt; look for people who saved money and follow their advice. Use your own judgement when shopping. And decide today that you will do whatever it takes to enjoy a debt-free life. You deserve it!

Article found on www.overcome-debt.com/developing-a-budget

8 Steps to Reducing Credit Card Debt

1. Take stock. Before you start reducing your credit card debt, know where you stand, says Cate Williams, vice president of financial literacy for Money Management International, a large, national credit counseling firm. "A lot of people will say they've got a certain amount of debt -- $9,000, let's say -- when in reality, it's $11,000 or $14,000." You'll never hit your target if you don't know where it is, so be brutally honest with yourself.
Action plan: Write down the debt -- and the interest rate -- on every card you have.

2. Improve your rates. The quickest way to save big on your credit card bills is to negotiate a lower interest rate. If you can shave off even a percentage point or two, you can save hundreds as you pay off your debt. A simple phone call and a polite request may be all it takes. While your credit score will play a large role in whether or not you get a rate cut, it's not the only factor. "Every lender has their own approach to this issue," says Weston. "It never hurts to give it a shot."
Action plan: Call up each credit card company and request lower interest rates.
3. Track your costs. Write down all your regular, committed expenses (mortgage, utilities, insurance, car payments, minimum credit card payments, phone, gym, cable, etc.), and track other variable expenses such as restaurant meals, entertainment and travel. This will serve as the foundation to your budget.
Action plan: Study up to a year's worth of credit card bills and bank statements to get an accurate sense of your monthly spending, and keep tracking your expenses with a notebook or financial software.

Credit card videos
For more on this topic, check out this video: Credit card debt warning signs

4. Create a budget. It's time to take an ax to some of those expenses. The key is to be realistic: You'll have to make some sacrifices, but you don't need to live on bread and water.
"Cutting back can be more effective than cutting out," says Gail Cunningham, spokeswoman for the National Foundation for Credit Counseling, a leading accrediting agency for credit counseling firms. "It's hard to adjust your lifestyle too dramatically, and often, little adjustments can add up to big savings." Cutting out a single pizza dinner each week, ratcheting down your gold-plated cable plan and changing your thermostat by a few degrees can give you the jump start you need. Be sure to give yourself a bit of breathing room in your budget in case an unexpected expense pops up.
Action plan: Write down three ways you can cut back immediately, and cancel or downgrade some services. Divide your monthly discretionary budget into weekly allotments so you'll have a better handle on whether you're staying on track.

5. Choose your payoff strategy. There are two common credit card payoff strategies. The first is to plow all your extra cash into the highest-interest card while paying the minimums on the others -- which is the fastest way, overall, to lower your debt. Once the first card is paid off, you have even more extra cash, and should apply it to the card with the next-highest rate, and so on, creating a debt payoff snowball effect. A second strategy is to pay off your card with the lowest balance first while continuing to pay the minimums on the others. Though this is not the most cost-effective way to banish your debt, it's the fastest way to eliminate debt on a single card, and it can be a psychological boost to eliminate a bill for good.
Action Plan: Choose your strategy, then rank cards in the order you'll pay them off.

6. Stash your plastic. In 2000, MIT researchers took two groups of students and dangled scarce Boston Celtic tickets in front of them. One group was required to pay cash; the other was asked to pay by credit card. The credit card crowd was willing to pay more than twice as much, their research found. "I've seen people save 20 percent when they begin paying with cash," Cunningham says. "They become more contemplative of their purchases."
Action plan: Store your credit cards where you won't have easy access to them -- but don't cancel them. Plan to pay in cash whenever possible.

7. Find your motivation and support. Create concrete goals to stay focused. Maybe getting rid of debt will allow you to save for a down payment on a house, go on a dream vacation or stop worrying about every bill that hits your mailbox. Weston recommends finding a community to swap stories, successes, and challenges. "A forum where you can feel supported -- where you can say ‘I'm so tired of trying to save money' can be really helpful," she says. "Sometimes it can feel really dumb, but it's nice to be with people who are trying to do that same thing you are." There are hundreds of personal finance bloggers and forums where you pull up a virtual chair.
Action plan: Write down your goals and keep them in your wallet or purse. If you get tempted to overspend, take a look at them to remind yourself of the bigger picture.

8. Track your progress. While you don't want to spend every day fretting over your bills, keep an eye on your spending. "Revisit your progress every few months," recommends Williams. "You don't want this to consume your life. It took you awhile to get into debt, and it's going to take you awhile to get out of it."
Action plan: Put reminders in your calendar to check up on your finances. Keep the page with your starting balances, and compare them to check your progress.


Article by Erin Peterson

3 Ways to Eliminate Credit Card Debt

Are you looking for three simple ways to eliminate your credit card debt? The first one is obvious, stop using your credit cards. This may seem like a silly thing to suggest, but the best way to get a handle on your spending is to only spend the cash you have - after you've paid your bills. Second, consider consolidating your credit card debt onto one card - or moving a balance from one card, to one with a lower interest rate. Some people are in a constant cycle of moving to the next 0% interest rate card. This can be a pain, but you'll save a lot of money and buy yourself more time to pay off the debt. Third, start making double payments. If the calculated minimum payment is only on the accrued interest, then you need to make a double payment to hit the principle of the debt. By finally hitting the principle and discontinuing use of the card for purchases, you'll see that balance begin to drop.

Article found on http://www.lowermybills.com/

Credit Card Debt Can Be Hazardous to Your Health

1. Insomnia. Visions of debt collectors banging on doors, negative bank statements, impending lawsuits, foreclosures and repossessions are enough to spook anyone out of a good night's sleep. Sometimes people are able to drift off, only to wake up in the middle of the night wracked with nightmares. Other times, just falling asleep is impossible. Functioning on a couple of hours of sleep is not easy for anyone; imagine how bad it is for those who deal with it for weeks, months or even years.
2. Teeth grinding. Ever been so consumed with a problem that you inadvertently clamp your jaw shut? Many people do this. I once had a client come to me holding a piece of cloth over his mouth, and he kept it there during the entire appointment. When I asked what was wrong, he said he had ground his teeth so badly that they cracked and some fell out. Unable to afford dentistry, all he could do was hide the damage and suffer.
3. Stomachaches. People often exhibit stress through stomach and intestines ailments. In fact, just opening a credit card bill or collection notice can trigger a nasty cramp. Abdominal complaints range from sour tummies requiring daily doses of antacids to debilitating ulcers needing surgery.
4. Weight loss or gain. Some people deal with financial worries by overeating. This, of course, leads to unintended and unwanted pounds. On the flip side, others simply can't eat or hold food in because they are so anxious. They become frail and weak to the point of sickness.
5. Headaches. When all you're thinking about is a way out of your financial mess, that focus can tax the brain pretty severely. Hence, throbbing gray matter -- or even migraines.
6. Skin eruptions. I recall a woman who was under such extreme pressure that her lower lip was in a constant state of blistering. Yes, it was painful, but it was also embarrassing. Interestingly, when she finally got her liabilities under control, the cold sores abated. I've seen money troubles result in other epidermis delights, such as acne flare-ups.
7. Substance abuse. Do financial problems cause addiction? No. But if you have a propensity to turn to drugs or alcohol in order to cope, there's a good chance you'll go down that path. Of course, leaning on any kind of substance can numb you from the reality of your circumstances, but it solves nothing -- and the physical toll it takes is often devastating.

Article found on creditcards.com

Escape the Debt Trap

"It is not the amount of money an individual earns that brings peace of mind as much as it is having control of his money"  (N. Eldon Tanner)

     In the last 10 years credit card debt has tripled in the United States. Seventy percent of all U.S. cardholders carry a balance on their credit card averaging $3,900, and about three-fourths of them make only the minimum payment, which would be about $78 each month. At 18 percent interest, it will take them 35 years to pay their debt, and they will pay out over $10,000 in interest before they are done. (Data courtesy of Bankcard Holders of America, Salem, Virginia.)

     Debt, no matter how attractively packaged, is a huge trap for many people today. It has proved to be a significant factor in the breakup of many marriages. If couples don’t use their resources wisely, overspending will eventually rob them of their money, time, health, family security, and peace of mind.

     Budgeting is a plan that helps people make the best use of their income and savings. Before beginning the budgeting process, it is important to distinguish between wants and needs. Realistic, workable budgets result when couples agree to provide carefully for their needs and to exercise self-discipline and patience as they seek to provide for some of their wants. Begin budgeting by listing all expenditures from several previous months. Determine where the money went and which expenditures were unnecessary and which were necessary.

     Once the stranglehold of excessive debt is loosened and eliminated, family members’ outlook on life brightens, homes become more harmonious, more children are taught by example the vital principles of provident living, and families are freed from financial bondage and thus more able to focus on truly important concerns.

Full article found on lds.org