Master Your Credit and Debt


Get ready to dig in…or to dig yourself out. It’s time to take control of your credit cards, mortgages and loans before they take control of you. Just one misstep (or missed payment) could send you spiraling out of financial control. And you don’t want to get sucked into that cyclone of debt.

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Credit Cards: How to Get Them, Manage Them & Keep Them

Living life without a credit card can feel like getting by without cable TV. You can function; you just might feel like you’re missing out sometimes. Over here your credit score says as much, if not more, about you than your social profiles. And credit cards provide the foundation for that score. Without it, achieving many of the financial goals that are most important to you would be nearly impossible.

There are other ‘pros’ too, including:

Convenience
Using credit card statements to track your spending
Revolving credit equates to quick loans when you need them
Perks, incentives and rewards
Less cash tied up when renting cars and hotels.
There are also a number of ‘cons’ including (but not excluded to):
Credit cards make it too easy to spend beyond your means
Credit card statements equal more paperwork
Fees if you carry a balance or miss a payment
Fees for ‘conveniences’ like cash advances
High interest rates that often outweigh a credit card’s benefits

So, plastic is not always fantastic. In financially irresponsible hands, a credit card can lead consumers into all manner of pitfalls, valleys and catastrophes. In your hands, however, a credit card is tool, one you should use wisely to build a solid credit reputation.

Of Offers & Spam…How to Score the Best Credit Card Deal

“No fee if you transfer your balance now!” screams one. “Low fixed rate!” promises another. “Zero percent APR until next year!” beckons the third. These are the musings of your latest credit card offers. Each is charming in its own way; but few come through with what you really need. To get to that, you’ll have to pick the language from the lingo.

It’s (Almost) Plain English

Credit card offers and provisions are not exactly written in the jargon of high finance. It’s basic marketing on the front end, plain English on the back (even if it is in small print).

Here are the most important terms to look out for:

Annual percentage rate (APR) is the actual cost of credit as indicated by a yearly (fixed or variable) interest rate.
Balance computation method is the formula used by credit card companies to determine the outstanding balance on which you’ll be charged interest during the billing period.


Finance charge is the cost of credit for a particular billing cycle. It’s determined by multiplying the outstanding balance by the periodic rate.


Fees are miscellaneous charges levied against your account. Some examples include: annual fees; cash advance fees; balance transfer fees; late payment fees; and over-the-limit fees.


Grace period is the amount of time you have to pay off your balance without incurring finance charges.

Talk Your Way Into the Best Deal

Credit cards will almost always cost you something. Some are just more costly than others. Before you even think of applying, call your potential creditor and ask these key questions:

What's the interest rate?
Is it fixed or variable?
If variable, how is it calculated?
Will I be charged different interest rates for purchases, balance transfers, and cash advances?
What method determines the outstanding balance used to calculate the finance charge?
Is there an annual fee, and what else may be charged?
What's the length of the grace period (if any)?

Establish a Usage Plan

How do you plan on using your future card? If you intend to pay it off each month, the card declaring a “low interest rate” will be less appealing than the one offering “no annual fee!”

Before You “Transfer Your Balance!”

Credit card companies commonly lure you to their balance sheets with balance transfers offered at low introductory “teaser” rates of interest. This basically means “surfing” your debt from one creditor to another, in the hopes of eliminating high finance charges. That’s all fine and dandy, until you discover:

A higher interest rate on new purchases
A low introductory interest rate that only applies for an abbreviated period of time
Balance transfer fees
Termination fees and retroactive interest charges when you “surf” your debt somewhere else
If you’re denied

Don’t take it personally. The issuer is required to inform you specifically why you were turned down, or direct you to further information. You’ll also be entitled to a free copy of your credit report.

Speak Up for Your Rights

The Fair Credit Reporting Act (FCRA) protects your right to know what’s in your credit file. Not only that, there are procedures in place to make sure that the information being shared about you is fair and correct.
The Equal Credit Opportunity Act (ECOA) ensures that when you apply for credit, you won't be discriminated against because of gender, race, marital status, or age.
The Fair Credit Billing Act (FCBA) offers protection against billing errors.
The Fair Debt Collection Practices Act (FDCPA) limits practices collection agents may and may not use to collect a debt.
If you feel your rights have been violated and you can't resolve the issue with your creditor, file a complaint Federal Trade Commission (FTC) or contact your state’s attorney general.

How to Score Good Credit

If you’ve been denied a loan, mortgage, lease or credit card, chances are it has something to do with your credit score. You can read more about credit reports and consumer protection here. In the meantime, here are six ideas for boosting your score, raising your limits and improving your rep one credit card statement at a time. 

1. Pay bills on time and reduce the amount of debt you have. This includes credit cards and every kind of installment debt you currently owe.

2. Pay off credit card bills entirely each and every month. If that’s not doable, do be sure to pay them by the due date (preferably beyond the minimum) and come up with a plan to pay them off fully…soon. 

3. Set up text and email reminders. Lenders and creditors are pretty modern these days. Most will sign you up for this option before you take that first swipe.

4. Automate your bill payments. By enabling automatic credit card payments you don’t miss any due dates.

5. Stagger your debt by interest rate. Pay off cards with higher interest rates first. This will improve your credit score and cut down on fees and interest. At the same time, consider paying down credit that is at or close to your limit.  The closer to the limit you are, the more your credit is impacted and your score lowered.

6.  Consider your credit cards carefully. Contrary to what many believe, closing unused accounts does not have a big impact on raising your credit card score. Opening a bunch of new credit cards in the same year and closing others can actually have a negative impact on your credit score.  Instead, try this: rely on two to three credit cards that you use prudently one month and pay off the next. Building credit wisely over time helps your credit score.

7. Consider a Small Installment Loan.  If you are in need of credit, and are hesitant about entering the world of credit cards, a small installment loan is a good, credit building option. An installment loan is a loan that is repaid over time with a set number of scheduled payments, typically at least two. Small installment loans demonstrate being credit worthy through a stream of payments on a debt over time, which builds your credit score.

And remember…it’s more than a number!

The three major credit-reporting bureaus calculate your score by taking several factors into account, including:

The types of accounts you have open
How long you’ve had them open
How high the balance is currently or has gone in the past
Your payment history
The current status of the account, your ‘payment performance’ over the past two years, charge-offs and repossessions

To boost your score, follow the seven tips outlined above, check your credit reports regularly and protect yourself if you feel you’ve been the victim of fraud. After all, it’s your credit on the line.  

Where Does a Monthly Payment Actually Go?

We use credit cards for convenience, to build our credit reputation, and to rake in points and rewards. But let’s be honest: we also sometimes use them as “money” when we don’t have any. As such, they tempt many of us to misuse them – oftentimes into the deepest depths of debt.

The only way to claw your way out is to…
Not go down that rabbit hole in the first place
Pay your balance in full, each and every month
And apply a smart payoff strategy...…and the only way to achieve that is to understand what goes into a monthly payment in the first place.

What is credit card debt, really?

To borrow a turn of phrase from credit card companies, the actual debt is your ‘revolving balance’. At a very basic level, that means when you use the card:

Your balance increases
Your remaining credit decreases 
You can either pay the balance off in full, or ‘revolve’ it from one billing cycle to another. When you do this, the lender charges you fees (finance charges and interest) on the outstanding amount that remains. So, essentially:
A credit card statement represents your balance and then some.

Because credit cards generally carry high interest rates, your ‘minimum monthly payment’ might cover little more than the interest charge. That’s more like scratching your debt than putting an actual dent in it. Not only that, but finding your actual credit card balance is not as straightforward as you’d think. Different companies calculate – and, indeed, bury – balances in different ways.

The Adjusted balance method takes the balance due at the beginning of a billing cycle and subtracts payments made during the cycle; new purchases are excluded until the following month.

The Previous balance method reflects the balance due at the beginning of the billing cycle; charges made during the rest of the cycle are totally excluded.

The Average daily balance method calculates the total due each day, then divides it by the number of days in the cycle. Payments are subtracted as they come in; new purchases may or may not be added in.

Other charges to remember:

Finance charges can vary wildly according to each method. Check in with your lender!

If your monthly payment is late, you’ll not only get slammed with a huge late payment fee but your interest rate might shoot up from a “teaser” deal to the current market rate, or beyond—in some cases rate have risen to over 30%!


Take care to stay within your credit means. If you don’t, you’ll get charged with a fee for exceeding your credit limit.

To truly eliminate debt credit card debt, you’ll need to:

Swipe within spending limits to avoid over-limit charges

Pay off your entire balance on time to avoid finance and interest charges


If paying in full is not possible, pay at least beyond the minimum on time to stay ahead of the debt

Remember:

Automate your payments to keep yourself and your credit on track – and always be saving. The road to realizing your financial goals is paved in pennies, not credit card statements and fees.