In any game, including debt, there are strategies that will help you win. One of the easiest strategies to master is “no new cards.” As convenient as they are, and even though they have helped most of us through some experiences we may not have gotten through without them, credit card debt should be handled with great caution.

Remember, the maximum limit on each card with your name on it is the amount that goes in your indebtedness column on your credit report. In other words, let’s say you have four cards with a total maximum limit of $12,000. Creditors will look at that $12,000 as if you have indeed charged that much against them, even though you may only have a $250 balance on one of the cards.

One common marketing approach is to offer you a credit card at a low rate if you will consolidate all of your cards onto that card. People who are behind in their payments of other debts often apply for several of them.

The next time you get one of those offers in your mailbox, and I would guess it will be within a week since the average American gets twenty each year, look at it closely. If it looks at first glance like you have been preapproved for credit of $100,000, look again. Find the words “up to” in smaller letters. At the risk of having it show up on your credit rating, I don’t recommend applying for it.

Share This

Now that you’ve learned who the players are in the debt game, we’re going to discuss types of debt. Fundamentally, there are two types of debt: secured and unsecured.

The type of debt you “play” with in the debt game may depend on a variety of factors such as your credit rating, the type of product you’re trying to purchase with debt, and regulatory limitations.

When a person or institution loans us money, they want to know when they will get their money back, how much they will be paid for their faith in us that they will get it back, and what will happen if we don’t pay it back. If a debt is secured by something, the lender expects that if we don’t hold up our end of the agreement, they can go to the security or collateral on the agreement and collect what is owed them.

If a debt is secured, it means you, as the borrower, will only receive the loan if you can offer collateral of some type to the borrower. In essence, if the lender expects either you (based on your credit history) or the loan to be risky, the lender will request collateral, or something with a value equal to the amount you are borrowing. The lender requires this to ensure that if you don’t hold up your end of the agreement, the company can collect on the loan by using the collateral to recoup what is owed.

What exactly is collateral? Collateral is something of value that we already own that can be used as a guarantee that a borrower will pay back that loan. Collateral can range from a car, boat, jewelry, or a house, depending on the size of the loan.

Similarly, if we rent a home, the landlord often takes a month’s rent in advance, the final month’s rent, and a security deposit at the time you sign the rental agreement. The money you give the landlord secures your lease agreement that you will, in fact, move in when you said you would, you will not leave without paying your last month’s rent, and you will leave the home in the condition you found it when you moved in.

Students often cannot come up with that much money up front. They may ask their parents to cosign on the lease, making the parents liable to the security on the rental agreement. That way, the landlord has recourse through either of the cosigners to get the money owed according to the rental agreement.

When you borrow money to buy a home, the mortgage lender will probably require you to put money toward the house as a down payment. The lender doesn’t want 100% of its money in the home in case it loses value before the loan is paid. The lender holds the title of ownership for the house until you pay it off.

Co-signing on a loan is, in a sense, a form of secured lending. Agreeing to be a co-signer on someone else’s loan can be a gracious thing to do for a friend or relative, but remember that business is business. Before you agree to put your signature on the agreement, be sure that you have read the terms and conditions of the contract and know what you are about to sign for. Although the borrower assures you that her plans are good and that she has no intention of not paying back her loan, “debt happens” and you may be the one ending up paying off the loan.

One of my clients was a 55-year-old widow who had most of her savings in a 401(k) tax-deferred retirement savings plan and an IRA that had been left to her by her husband. Her son decided to go into the carpet cleaning business and needed money to buy the franchise, a van and the cleaning equipment. He was confident that this was going to be a booming business, and he had dreams of a fleet of vans and a number of employees. He had dropped out of college and had only a few hundred dollars in savings to start his business.

His mother was pleased with his entrepreneurial spirit and agreed to co-sign his loan with the bank to start the business. Because her savings were all in tax-deferred retirement accounts, she became liable for the taxes at her current interest rate of 28 percent and a 10 percent penalty because she was not yet 59Yz. Even though the money was still in her savings accounts, she triggered these IRS events when she agreed to use them for collateral on her son’s loan.

Unfortunately, after a year in the business, her son had developed an allergy to the cleaning chemicals and had to abandon his business. Guess who got stuck with the loan payments! Mother will now have to work much longer than she had planned.

I love my kids, but I don’t think we as parents owe them as much as we often think we do in terms of financial help. We love and care for them as parents. We may help them to get started in a business or a career if we can afford to and choose to without guilt or obligation. But we are not required to jeopardize our own well-being or retirement to help our adult children financially.

Share This

Okay, let’s see how you might play the debt game. Read the following situations and see what you’d recommend based on what you know about debt.

(1) You need $4,500 now. It is an emergency. What will you do? What if it isn’t an emergency how might this change your strategy?

Ideas: An emergency requires fast action. If you don’t have the cash, you need to get some, and credit cards or a personal loan from an FFA would likely be the source. If it is not an emergency, sell something you own of that value or get a part-time job for a month or two.

(2) You need over $5,000 within four weeks for an important opportunity but not an emergency.

Ideas: Work a second job, sell your car for a while and take public transportation.

(3) You know you’re going to be late paying a loan.

Ideas: You see where you can find the money to pay the loan immediately; you call the creditor and say you’ll be late on the payment; call the creditor when you pay the bill or when you discover that you will not make the date you promised to pay.

(4) You are preparing to buy a home.

Ideas: Study the housing market in your area; ask friends about their agents and if they would recommend her to you; get to know an appraiser to find out the inside opinion on preferred areas of town; get preapproved for a loan; shop the best mortgage companies.

We all play the debt game because there are times we must borrow to meet challenges and take advantage of opportunities. The important thing to remember is that as long as you are controlling the amount of your debt and paying it off in a timely way, you are ahead of the game.

Share This

A credit union is a not-for-profit financial institution chartered by the state or federal government and owned by its members. Credit unions may be formed by any group with a common bond, such as teachers or farmers. It is governed by a board of volunteers who are elected by their fellow members, and can be formed by any group with a common bond. Because credit unions are nonprofit organizations, they don’t pay taxes on their profits the way banks do. This means they can provide low-cost financial services such as loans, checking and savings accounts, CDs, debit cards, and even credit cards. Most credit unions protect their accounts for up to $100,000 through the National Credit Union Share Insurance Fund but check with the individual credit union before you become a member.

Thanks to the Credit Union Membership Access Act, signed by President Clinton in 1998, more people are now eligible to join credit unions through associations, churches, schools, civic groups, and even members of communities. Members of these organizations are allowed to sign up immediate family members. This definition has been broad ened to include spouses, children, siblings, parents, grandparents, grandchildren, stepparents, stepchildren, and step-siblings, as well as “household members,”which includes people living in the same residence as a single economic unit. Over to 10,000 new groups have joined credit unions since 1998.

Credit unions are a great concept. At this writing, there are nearly 13,000 credit unions in the United States. While credit unions may offer higher rates for consumers on deposits (such as CDs and savings accounts) and lower rates on loan products (such as mortgages) than traditional banks, they may not compare with the rates that online banks now offer consumers.

Credit unions started through work groups where the facilities were generally located onsite. Unlike banks, credit unions are owned by the members who elect their own board of directors and have voting rights (because they are actually stockholders). If you can’t find a financial institution that will allow you to become a customer or a member due to your past financial difficulties, ask what you need to do to become financially stable in their eyes. Then work toward that goal and reapply. Talk to one of the officers of the bank or credit union when you want to initiate this conversation. Of course, ask whether they are FDIC- or NCUSIF-insured before you go further.

Share This

Debit cards, as you know, look just like credit cards. The difference is the payment comes directly out of your checking account instead of increasing your credit card balance.

When debit cards hit the scene, Cena was one of the first to trade in her old ATM card for the new, more convenient card. Her boyfriend was concerned about the safety of the debit card and was slower to get one. His concerns were shared by many who were concerned that using the card would enable someone to steal the card numbers and empty your checking account.

Most banks now have protection on their debit cards similar to that used by credit card companies. You will want to check with your bank to find out the protection your card carries.

Actually, debit cards have some real advantages to helping you be a smart spender.

• You can use the debit card instead of cash, reducing the amount of cash you need to carry and perhaps lose track of.
• Using the card means you don’t have to use the ATM machine, which saves you ATM fees.
• When you use your debit card, you are given an option to get cash back. This again saves you from having to pay ATM fees.
• Using your debit card instead of your credit card keeps you from reckless spending on things you don’t really need, because you know it will come directly out of your checking account.
• Using a debit card rather than a credit card will do wonderful things for your credit card balance. You will see the number of purchases decrease, making it possible to pay down your balance more quickly.

Share This

You should examine your credit report at least twice a year. In examining your report, it is important that you be on the lookout for any erroneous listings on your credit report. While it is necessary to question any irregularities and contact the credit bureau with any challenges, it is a federal offense to lie when disputing your credit report.

To get a copy of your credit report, contact the three major credit bureaus. If you have been denied credit within the past 60 days, they will issue a free report to you. If you live in Colorado, Georgia, Maryland, Massachusetts, New Jersey, or Vermont, you can get a report at no charge; otherwise, the charge is $8 unless your state has arranged a different fee with the credit bureaus. When I last checked, Maine’s cost was $3 and Connecticut’s was $5. All of the credit bureaus may not have the same information, so you will have to look at all three.

There are offers on the Internet to send you a compilation of all three. Only Experian and Equifax allow online delivery, so the three agency report must be sent to you by mail; you may find several companies that make this offer for various prices.

To order the credit reports, you need to send them copies of some identification that shows your name and address. Your driver’s license, a recent utility bill, or a recent credit card bill will do just fine. You also need to include your signature with the letter so they know you are authorizing the credit report. You may order your report and your spouse’s at the same time, but your spouse must include the same information and also sign the letter. There are stiff fines and possible imprisonment for ordering a credit report without proper authorization.

If you have a spotty credit history, you may feel shy about asking for your credit reports. You can’t clean them up if you don’t know what is in them. Don’t waste time beating yourself up; just boldly ask for your credit report and do what you need to do to fix it.

If you need some help creating a form to order your credit reports, try this as an example.

After you have received your credit reports, go over them very carefully and make sure that they are correct. If you find that you have old credit cards or store cards still on your credit report, call the creditors and ask them to close the accounts and inform the appropriate credit bureau. Each of the three major credit bureaus is supposed to inform the others of changes you requested, but you will need to look the next time you get your credit report to see if it was done.

While it would be ideal to have a perfect or near-perfect credit report, the reality is that many people have negative marks on their credit history and still get loans. This doesn’t mean that you won’t be able to get credit; it just might affect the size of the down payment required to make your purchase or the rate of interest.

Share This

Before we get into the players in the game of debt, you should understand that there is good debt and bad debt. What’s the difference? Simply put, sometimes it’s a good decision to go into debt if that debt will help you gain financially or in some other way. For example, getting a mortgage loan will mean you’ve got a debt to repay; but over time, your home should appreciate in value and, therefore, your debt will help make you money.

Good debt is, in the simplest of terms…

• When the item will outlast the time it takes you to pay it off.
• When the alternative to buying the item would cost you more or put undue hardship on your quality of life.
• When the interest rate is competitive.
• Bad debt is, in the simplest of terms.
• When you’ll still owe money after the item is consumed or worn out.
• When you can live without it by using some self-control or creativity.
• When the interest rate is not competitive.

In analyzing whether a debt is a good one, here is a simple filter to put it through. Will the debt.

1. Give the borrower a legally and morally sound opportunity to get out of the debt or obligation?
2. Be used for something that has a life-expectancy of three years or more instead of something that will be gone, depreciate in value, or be consumed before it is paid for?
3. Be secured by something at least as valuable as the loan itself so that the collateral can be sold to payoff the loan?
4. Be backed by someone or something that has the ability to pay off the loan if the borrower defaults.
5. Have a competitive interest rate? If the loan you’re considering is outside the competitive range, it may signal a problem. If you are a person with a history of credit problems or a low credit score, expect to pay a higher interest rate (up to 5 percent higher) to compensate lenders for taking what they consider to be a higher risk in lending to you.

When you need to borrow money to pay for something, give the loan the security test before you sign the agreement. When you do sign the agreement, make sure you have read, understood, and agreed with the terms and conditions. Don’t take anyone’s word for it until you do.

The Players

To understand debt, you must understand how lending organizations work. You can incur debt from any number of sources. These sources can range from large banks and credit unions to your brother who lent you $100 last payday. The vital part in all these transactions is knowing the terms of the loan-whether it is a mortgage, credit card charge, or whatever form your debt has taken.

Share This

To develop a credit scoring model, random loan customers are sampled statistically to identify characteristics that relate to patterns of repayment. Then, each of these characteristics is assigned a weight based on how strong a predictor it is of the likelihood of repayment. The higher the score, the lower the risk for the lender. A borrower with a score of 660 or greater is considered to be of less risk for the lender, while a score of 620 or lower is a poor credit score. Credit scoring cannot rely on factors such as race, religion, gender, income, address, employment, national origin, or marital status, but some scoring systems may use age as a factor in determining a credit score.

Credit scores rely on the following:

• Occupation and time at present job.
• If you are a homeowner.
• Past payment performance.
• A pattern of late payments brings down the credit score.
• Credit utilization, or the way credit is used. Borrowers who borrow to the limit of their credit cards are considered higher risk.
• Having both a checking and savings account can improve your credit score.
• Credit history, or how long the borrower has been borrowing.
• Someone who has had credit for a long time is considered less risky.
• Inquiries into the applications for credit. The number of times a person has asked for credit or has had an inquiry into their credit record affects the credit score. Frequent requests for credit or frequent inquiries in a short period of time bring down the credit score.
• Types of credit in use secured credit card, installment loans, revolving loans, or finance company lines.

Practicing more responsible borrowing and repayment habits will help improve your FICO score. One thing to be aware of is that while consolidating your bills and closing some of your credit cards may seem like a good idea at first in an attempt to raise your FICO score, it can actually negatively affect it. It brings you closer to your credit limit by removing available credit without reducing your existing debt.

As you can see, your credit score is determined by a number of factors and it is important to take all of these into consideration before taking any action. Improving your FICO score is not something that happens overnight, but taking steps now will get you far on the road to less debt and more cash.

Share This

Credit cards could be considered a staple among the financial tools at our disposal. Some experts consider them a requirement in today’s world. Today, you can’t buy a plane ticket, reserve a hotel room, or rent a car without a credit card. I suggest you view credit cards as a tool that can help you. If you’re responsible and payoff your credit card bill every month, you can use that card to help you earn bonuses such as frequent-flier miles, which is a great benefit.

Credit cards are also known as the best friend of new business owners, who often don’t have the track record to get a traditional bank loan. Often, they can finance their new business by utilizing their credit cards as a lending vehicle, and spreading the payments out over time. While credit cards can be wonderful and offer us convenience, they can be a deadly part of the debt game.

Credit card lenders are really banks. The banks collect deposits from consumers and other entities, and then loan that money out. However, in the case of credit cards, they’re loaning that money out to credit card customers instead of traditional bank lending customers.

A credit card provides high-interest, unsecured loans that allow the cardholder to “buy now, pay later.” This is a very lucrative business for the banks that issue credit cards to consumers. They make up to 21 percent or more on the balance due if the balance is not paid off each billing period, and new purchases begin accruing interest right away.

This is known as a revolving account because the holder can simply roll the new balance to the next billing cycle and pay only the stated minimum amount shown on the bill. These cards mayor may not have an annual fee depending on the other “goodies” like frequent-flier points, money back at the end of the year, or no annual fee.

Credit card rules can also change frequently. What may look like some junk mail may actually be a brochure that tells you the rules of the game have changed. If you don’t pay attention to it, you may be in for Some surprises on your bill. My credit card company changed the envelope that the bills came in and it looked to me like more offers to get a credit card. I threw them away unopened until I got a phone call asking me why I suddenly stopped paying my bill. When we discovered my problem, I agreed to pay it immediately and they cancelled the accrued interest and late charges, due to my excellent payment record. Keeping the cardholders ignorant is an advantage to the credit card issuer but they do have to disclose any changes to your original agreement. If you miss them, you’re the one responsible.

Most of the major credit card companies work hard to educate consumers about credit card debt and how to make it work for you. Next time you’re in the bank or browsing online, look for information about the use of credit cards by the issuing companies represented by the bank.

Share This

There are many ways to spend smarter in your life. It’s all about making minor adjustments in your behavior:

1. Consider getting a roommate to split your expenses.
2. If you have co-workers who live near you, carpool to save gas expenses and mileage/maintenance.
3.  Do your own minor home improvements or repairs.
4.  When making travel arrangements, check for discount tickets on internet.
5.  Use coupons even the millionaires do (how do you think they got to be millionaires?). These are especially good when grocery stores offer double or triple coupon days. Buy only things that are on the grocery list.
6.  When you get tired of looking at your old furniture, don’t buy new; refurnish and reupholster.
7.  Even if you’re shopping for one person, join a bulk-buying club to save on non-perishables such as toothpaste, batteries, soap, paper goods, and more.
8. Carry your lunch from home instead of always eating in a restaurant or cafeteria.
9. Look for two-for-one or “early bird” specials if you eat in restaurants with friends who are also trying to save more money.
10. Don’t be too proud to ask for Senior Discounts or order from the children’s menu if you find that restaurants serve you too much food.
11. Stop buying lattes or mochas every morning. Drink coffee at home.
12. Make your own frozen dinners.
13. Buy generic brands of food and drug store items.
14. Try to never buy groceries on your credit card.
15. Wash your own car and pump your own gas. Some gas stations even give free car washes with gas purchases.
16. Do you need a different car or will your old one still be fine for a few more years? Your insurance rate and licensing may go down as your car ages.
17. Talk to an insurance agent to see if you have the best rate for the age of your car.
18. If your old car is getting too expensive to maintain, buy a used car rather than a new one. The first two years of depreciation are the greatest.
19. Keep your car on its scheduled maintenance program so it will last longer.
20. Car pool to work or use city transportation and avoid parking costs.
21. Buy monthly passes for busses and trains.
22. Mow your own lawn. It’s good for your mind, your body, and your pocketbook.
23. Clean your own house.Use a library instead of buying books or magazines.
24. Check out movie rentals at the library; many of them are free.
25. Go to matinees to see new films.
26. Take enough cash from each paycheck to get you through that period and avoid too many stops at the ATM. Keep track of where that cash is going.
27. Payoff your credit card balances each month. Just paying the minimum will keep your credit clean but the interest continues to grow and you will find that the entire bill increases monthly even if you add no new purchases.
28. Refuse to pay an annual fee for your credit cards.
29. Never sign a credit card receipt without checking the purchase price(s). Those wonderful sale prices are not always scanned into the computer correctly.
30. Call your telephone long-distance carrier about every six months and ask if you are getting the best rate they offer for your kind of usage. They will often offer an unpublished rate just to keep your business. You can get comparative information on an Internet .
31. Do you really need cable TV? If you need it for good reception, just get the basic plan.
32. Look at your phone bill. Do you really need the extra line, caller ID, call waiting, and call forwarding?
33. Try e-mailing your friends instead of calling long distance.
34. Do you really need a cellular phone? If so, are you paying for a more expensive plan than you really need?
35. Review your insurance policies annually. Have enough insurance to cover your needs, but not more than what you need.
36. Check your insurance premiums. Get quotes online (www.Quotes. com) or from an insurance broker or agent to see if you can save some money on your premiums. You may get a better rate by having your home or renter’s insurance with the same carrier as your auto insurance.
37. If you need life insurance, buy term insurance and be a responsible investor with the money you save over permanent insurance premiums. If no one is depending on you financially, you may not need life insurance at all.
38. Turn down your heat when you leave for the day to save on your heating bill.
39. Donate things you don’t use or want to charity and use the receipts to help lower your tax bill.
40. Press your clothes at home if that’s all they need, and save on your dry-cleaning bill.
41. Do you get the extended warranty on many things you buy? Sometimes that is covered by the store where you purchased the item.
42. Walk or ride your bike instead of joining a gym or having a personal trainer.
43. Shop for holidays all year long and take advantage of sales.
44. Instead of buying lottery tickets, put the money into your interestbearing cash reserve account. Your odds of winning are better.
45. Save money in an interest-bearing account for big items like furniture and buy when you have the money instead of financing on credit.
46. If you buy a seldom-used item such as a kitchen appliance, purchase less than the top-of-the-line model or brand if it will serve you well enough.
47. Pay bills on time so that there are no late fees or interest added.
48. Research large items you plan to buy on the Internet to save gas, time, and avoid falling for persuasive sales people.
49. Be proud of the way you spend your money. If you feel guilty, find out where that feeling is coming from and work on it.

Share This