Credit Cards Debt - Stop the Train

The Credit Card Versus Debit Card Debate

2012-05-02T08:10:00.002-07:00

The on-going question in money management being which one should I use or should I use both? While managing your money with regards to the use of debit and credit cards has seen a switch in the most recent years from more people using debit cards rather than credit cards than ever before. The primary reason being with a debit card you are spending money you have in your bank account. It is the same as writing a check without the paper. The cost of using a debit card resides more with the merchant than the customer because in most cases the debit card is free with you checking account. However, it is not always free literary because the bank has fees and service charges linked to your account that can add up if you have over-drafts or in some cases don’t maintain a minimum balance in your account. The increase use of debit cards has resulted in some changes that have a direct impact on you as the consumer as well. Have you attempted to rent a car with a debit card lately and they requested a $400.00 deposit to assure the debit card was covered for the use of the rental. This is but one example of merchants attempting to protect themselves from overdraft on checking accounts that can happen just as it did when most consumers were writing checks. The use of checks has seen a similar decrease as the use of credit cards for purchase given the convenience of debit cards to make purchases. So with the ever increasing use of debit cards as an alternative to credit cards are there still times when it makes sense to use credit cards. The answer to this question is yes…but as with any money management area of concern it requires fore thought and selective use to maintain both a health budget and build a credit rating to help in larger purchases in the future. A benefit of credit cards is better protection than with debit cards. If a credit card gets stolen, once you report the loss, you may only be liable to pay up to $50 if any money from the account has been used without authorization. In the case of a debit card, if you report it more than 2 working days after it is stolen, you could be liable to pay up to $500 and if you fail to report it after 60 days, then your liability could be unlimited, depending on the card and state where you acquired the card. The use of credit card while still paying a role in our money management needs to be used in those cases where you can minimize the interest and fees associated with borrowing money as is the principle of credit card use. So when you use a credit card, you can spend more than what you have in the bank and postpone paying for it to a later time. The goal should be to repay the money you owe within the billing period, which is usually 15 to 45 days, so you don’t have to pay interest on it. Where most people get into trouble is not paying within the billing period or just paying the minimum payment allowing the debt to continue to grow due to interest rates applied to the outstanding balance. In today’s credit card market those interest rates can be as high as 11%-20% per year. So while the use of debit cards has increased a number of check and balances are being put in place both by the banks and the merchants to protect their interest as it applies to allowing the consumer to use them. The use of debit cards allows the consumer to better manage their existing funds, not have to carry lots of cash and mentally focus on spending within their budget of available funds. I would suggest this is a good thing in the long term for the individual and economy with more consumers getting control of their spending, debt and still being able to build their credit scores by managing the use of credit cards in line with good money management principles.

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How Much Are You Paying For Credit?

2010-07-07T08:43:00.000-07:00

Would you buy Gas for your vehicle with no idea how much it was a gallon? Probably not, right? Well think about it, if you use credit cards without a budget or spending plan you kind of do that everyday. Why do I say that because we all know there is a cost for using credit cards versus cash, and like buying milk and bread at the convenience store that cost is more? How do we convince ourselves it is not a big deal, well the credit card companies help us with that state of mind. We are able to rationalize the incremental cost of having it now is worth it in the long-term. However, most of us don't consider the true cost in the long-term based on the interest rates credit card companies are charging for that convenience. When you have a need for speed you purchase a car with a bigger engine (usually resulting in higher fuel cost, insurance, maintenance and related expenses)and when you have a need for instant gratification you usually pull out the credit card (resulting in interest and fees). How are these similar, because if you are a responsible driver, your speeds in most cases will align with the speed limits on the road and you probably didn't need to make that additional investment and similarly if you don't have a short term need for the items you purchased did you really need to buy it with a credit card? The link below is one of many providers on the internet making a credit card calculator available to help people understand the true long-term cost of credit cards. I strongly recommend you take the time to use this or any other available to determine the cost and duration of current credit card obligation in hope it will shine a light on a growing problem that is not going to just go away with the next economic recovery whenever that might be?

http://www.bankrate.com/free-content/credit-cards/calculators/free-credit-card-payoff-calculator/

Reducing Credit Card Debt - Requires Planning and Discipline

2010-04-26T05:52:00.000-07:00

Before you can set things straight with regards to credit card debt you must attack what got you there in the first place. The massive interest charges and late penalties on your existing balances will cause your balance to balloon, making it very difficult, if not impossible, to make progress. There are tons of resources out there to help you in this area with most saying the same thing, you have to take charge of the situation, eliminate the high interest/ penalty cards first by paying as much as possible to get them off the list and putting them away never to use again but not canceling them because it will negatively impact your credit score.

Understanding Money Management – A Key to Success

2010-03-29T18:31:00.000-07:00

What is there to understand you say? Well let’s start with some basis principles of money management as it relates to credit cards. While most understand that the use of a credit card institution’s money is not free, the concept of finance charges, late fees and annual fees are not fully understood. How many times have you heard a person say, my intentions were to always pay the full amount within the grace period of usually 30 days to not incur any finance charges and fees. While great in principle, it does not always play out in practice. There are many reasons for this with one of the significant ones being there will always be a time when that payment cycle shows up and making the minimum payment looks very attractive. The credit card companies put a lot of thought into this and that is why they make it very easy for you not to pay the full amount due. So once you start making the minimum payment you are off your strategy and what happens next, the balance continues to grow and you are not making a dent in it by paying the minimum due but the credit card company is smiling. The next thing that happens is you miss a few payments and there are late fees and if you miss too many they will increase the finance charge and possible suspend your ability to use the card. At this point who is in control of your money?

It’s Not Necessarily Easy – However it is Doable

2010-03-16T20:11:00.000-07:00

Spending for many tends to be just something that they do, while not giving it much thought until they are in an unmanageable debt situation. They see no reason to do anything different. Life is to short, and you can’t take it with you may be true but think about it, life is surely a lot more fun without the burden of credit card debt controlling it. So for many there is just a need to stop spending when they don’t have the money and to truly only use credit for emergency situations, while even in those situations vowing to pay it off in a fix amount of time. For many starting out they hear the only way to build credit is to use credit and while that is some what true this should not be confused with being over extended in credit debt. It is still very much about money management with you managing your credit not the other way around.

Manage Credit Cards – Don’t Let Them Manage You

2010-03-16T20:06:00.001-07:00

Let it be said credit in itself is not a bad thing. When you use it to your benefit and keep it under control it can enhance your life. There are a few basis rules to follow and you can make it work for you. Select cards with perks, cash back, no annual fee, low to no finance rates (usually for a fixed amount of time) and then use them only when you have to and pay them off within the grace period. Sounds to easy right, well if this is not something you feel you can do tell them no and it doesn’t matter if you are pre-qualified the answer is still no thank you.

Figure Out What Works for You – Stick to It

2010-03-16T20:05:00.001-07:00

What works for you may not work for someone else in getting control of spending and money management. It is essential that at a minimum you accept there is a problem and began to identify acceptable solutions. If you need the assistance of a professional, than do your research because there are so many resources available in this area for free and in most cases for a fee. You may want to start at your local library because you can be sure there is great deal of material written on the subject. Once you decide on a course of action stick with and adjust accordingly because as your life changes you will be met with new challenges. It tends to be a little easier to manage money when it is just you but what happens with a new partner, spouse, or children just to mention a few of life changes that impact your ability to manage money.

Taking Control of Your Credit – Let’s Celebrate

2010-03-16T20:02:00.001-07:00

Taking control of your credit is a reason to celebrate. With the average America being more than $10,000 in credit card debt, getting out of debt and staying out can be a life changing event. While this amount of debt may seem small in comparison with other major purchases like a home or car, there is a significant difference with credit card debt in that it can be never ending. The 30 year mortgage on your home and the 5-7 year financing on your car are set with a fixed monthly payment, as well as an end date that is achievable if you maintain you payment plan. This is not the case with credit cards they start out small with a reasonable finance charge but if not managed grow to a very sizable amount with a comparable finance charge with no planned end date in sight. In fact the goal of the credit card company is for you to be in debt for life and they will do everything possible to help you achieve their goal. Too soon to celebrate…well lets talk about a few of the ways people have been able to make this change in their lives.