| There's good debt and bad
debt. Credit card debt is the worst possible debt
you can have! Why? Because of the high
interest rates and because people usually use them to
buy things that depreciate (lose their value).
Also, that interest you are paying is not
tax-deductible. (You'll see when we talk about
mortgages, that
some interest you pay can, actually, lower your taxes!)
Scary Fact: The National
Credit Research Foundation says that Americans owe about
$285 BILLION in credit card debt... And half of
that is by college students!
More
info on credit cards:
Late Payments:
Making a late payment on a
credit card will get you in three ways...
1) If you are just a
little late (you miss the payment date listed on your
bill), you'll get hit with a late fee! This is
usually $30 to $65 bucks (or more) depending on the
credit card company and how much your balance is.
2) If you have late
payments, they'll usually raise your interest rate
WITHOUT TELLING YOU! I know someone whose rate was
30% because of late payments. Dang!
3) If you are more than
30 days late, your credit card company will probably
report the late payment to all the big credit agencies
and it will appear on your official "credit report" for
the next SEVEN YEARS! So, anyone who sees that report (a car dealer, a potential landlord,
a cell phone company, a mortgage company) will see that
late payment. It may affect your credit rating
too! (See my Credit Ratings section for more info
on this stuff.)
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So, DON'T
BE LATE! The best way to make sure you are
on time with those payments is to set up an
automatic deduction that will come right out
of your checking account each month.
You can do this all online and it's really
simple. You'll just give the credit
card company your checking account info...
Then, you can either set up an automatic
payment, say, $100 a month... Or, if you want
to make payments of different amounts each
month, |
you can have them email
you your statement and go onto their site each month and
tell them how much of a payment you'd like to make.
If you're like me, you do much better with email
statements than you do with snail-mail statements.
I'm online a lot and when the email statement comes
through, it's just really easy for me to take care of it
right away. I tend to lose snail-mail or put it
aside and forget about it.
Getting Your
Interest Rate Down:
Yes, if you are paying a
sickeningly high interest rate of 19.8% (or worse), it
IS actually possible to get that rate down... But,
only if you've been a good kid about making your
payments on time! There are a couple of ways you
can do this:
1) This is the easiest
and best way: Get out your credit card and call
the 800 number on the back of the card. Ask them
what your current interest rate is... If it's high
(over 10% or so), point out to them what a good (and
prompt paying) customer you've been and ask if they'll
lower your rate. THEY PROBABLY WILL! If they
say "no," tell them that you've just received an offer
in the mail from another credit card company offering
you a rate of 3% and you are thinking of transferring
your balance to the new card. See if that shakes
them down. If it doesn't...
2) Grab one of those
offers that you WILL get in the mail for 3% (or better).
Just be aware that the 3% is an introductory rate and
that it will go up (usually after 6 months or so).
Call the new company and tell them that you want to
transfer a balance over to them. They'll be so
stinkin' excited, they'll be all over you. Beware
of another thing: The second you make a late
payment (even 5 minutes late), you'll lose that low
interest rate.
Credit Cards
are a Necessary Evil:
Yes, you DO need credit cards!
Why? Because you want to be able to buy a house
and no one will loan you that money unless you have
"established credit." You need credit to get
credit. I know that sounds weird, but it's true.
If you are a college student, it's really easy to get a
credit card -- in fact, they'll even give you a lovely
water bottle with the card! Credit card companies
are all over college campuses offering cards to
students. Why? Because they are assuming
you'll go nuts with the cards, have lots of late fees,
then your parents will bail you out and start making
your payments for you. Of course, YOU are going to
get those credit cards (just a few) and BE RESPONSIBLE
WITH THEM! This is the smartest way to build your
credit. Do use the cards A LITTLE and PAY THEM OFF
AT THE END OF EACH MONTH!
If you can get an American
Express card, do it -- even though there will be a
yearly fee (usually $50). Why? Because these
guys are known to be pickier than the rest and it's good
credit to have. It just looks good on your record.
(Note: You have to pay off an Am Ex card each
month, so it's not really like the other cards. Of
course, they now have a plan where, if you can't pay off
that monthly balance, you can roll it over into a
regular credit card situation... But, DON'T DO
IT!)
Make the Most
of Having Those Credit Cards:
Here are the three main rules
about credit cards:
1) If you can eat, drink
or wear it, don't put it on a credit card! (You
should never have a credit card from a store. If a
cashier offers you 10% off if you sign up for their
credit card, JUST SAY NO!)
2) If you can't pay for
it at the end of the month, you don't deserve to buy it.
Unless...
3) Never, ever, EVER put
a vacation on a credit card!! Really, this is one
of the most foolish things you can do financially.
Hey, if you can't afford it (in cash), you shouldn't be
doing it. Until you can pay the bill, it's the
backyard, a lawn chair and a tall drink with an umbrella
in it for you!
4) If it's an emergency
or an investment in your future or something you can't
live without... THIS is when to use your credit
cards.
For example, a computer.
Computers are important things to have these days and
they are an investment into our futures.
A couple years ago, I needed a
new computer -- an expensive one to make these wonderful
websites and do some other important work-related
things. But, that was a chunk of money that I
didn't have at the time I really needed it. So,
here's what I did -- because I've been a good
(on-time-paying) credit card kid... I got out my
three credit cards and called the 800 numbers off the
back of each... I told them, "Hey, I want to buy a
$3000 computer and put it on a credit card... I've
got three empty cards here and I'm deciding which one to
use... What kind of deal can you make me?"
Well, the first card wasn't
very helpful and I was unimpressed. But, with the
second card... The guy was quick to make me an
interesting offer. He said that, if I took the
money as a cash transfer into my checking account, he
could do it at a permanent 4.1% interest rate.
(Which is very good.) He did explain though that,
if I was just 1 minute late with a payment, that the
rate would jump to 19%.
The moral of the story:
As with most things in life, if you're a good and
trustworthy kid, you can reap come big benefits!
Always
remember that "want" and "need" are two very different
things and "want" should always be paid for with cold,
hard cash.
OK, so you have
credit card debt... How can we fix it?
Check out my
Give-It-Up-to-Get-Rich article! It will get
you back on track.
You can
search for a credit card with good rates using our Google "safe
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