Entries Tagged 'credit cards' ↓
August 7th, 2008 — Debt, Goal, Personal Finance, bad debt, credit cards, good debt
Although debt is a dirty word to many, the fact of the matter is that the vast majority of us are in debt in some way or another. No matter how hard we try, there are times when you simply need something and cannot afford to pay for it straight off. For example, school tuition is the most common form of debt, and most of us cannot afford to pay for our educations up front. Discharging debt doesn’t have to be difficult.
So, most of us are dealing with debt in some way or another, but are we managing it correctly? Let’s look at a few signs that may indicate that your debt is taking control of you, instead of the other way around.
1. You can only make the minimum payment each month, and even that is a stretch.
This is a very bad sign, especially if you have more than one credit card. Your monthly minimum payment is only a suggestion from the credit card company and usually is not enough to pay down the interest that the account racked up for the month. This means that you are caught up in a spiral that may take years to correct.
Solution: Consolidate several cards into one low interest card. Make larger monthly payments to pay down that interest as well as the actual debt.
2. You use your cards for the majority of your purchases.
Credit cards should be used really only in times of emergencies or when you would like to take advantage of the ability to get a larger ticket item and pay it off gradually. Many of us fall into the trap of using our cards for gas, groceries or things that we really don’t need. Over time, these purchases really add up.
Solution: Only use that card for a real emergency. Set up a budget for yourself and remove your cards from your wallet if you have a hard time sticking to it. Never spend more on your credit card than you can pay off in a month’s time if you had to.
3. Late payments and over balance fees occur commonly.
Once you’re trapped in a debt spiral, late payments start to become more common as you try to scrape together enough money every month to make those payments. If you’re already close to your limit, a few late fees can put you over the top, and then you’re dealing with over balance fees as well. This can quickly get out of control, especially if you are only making minimum payments.
Solution: Always send your payment in 10 days before it is due. Many card companies use 9am on the morning of your due date as a time cutoff. If that day’s mail doesn’t have your payment, you will be considered late. If possible, try to pay your payments online so you don’t have to worry about it getting delayed in the mail, but watch out for surcharges that card companies will sometimes tack on for online payments.
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August 5th, 2008 — Budget, Debt, Goal, Investing, Money, Personal Finance, bad debt, credit cards, good debt
Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be a little odd to some people, but there is a way that you can use your credit cards to improve your credit rating and start investing in your future.
First, it is important to realize that credit cards are not free money – this is a problem that affects many when they get their cards for the first time. They run out and run up the balance until they are completely maxed out. The secondary problem with this is that many of these same people will make only the minimum payments on those cards. Suddenly, they are in way over their heads and it could take decades to pay off that debt, depending on how much it is.
Now, let’s take a look at how to use credit cards in the smart way:
1. Never max out your card.
Set a limit for yourself and don’t use the card limit as a guide. You should never have a credit card balance that is greater than three months of your current salary. Less is definitely more when it comes to credit cards. Strive to have a balance of less than $100 on most of your cards. Put aside a special card for emergencies and keep a bare minimum of debt on that card to keep it open.
2. Make monthly payments higher than the minimum amount.
This is an easy way to eat away at your debt and keep your credit rating high. Making regular payments is the best way to achieve a good credit rating, but making higher payments will also help. You should also putting a charge cap on your cards, and try to never spend more than you will be paying for the payment each month.
So many of us use our credit cards for frivolous items that will only lessen in value. If you took that same amount of money and used it to invest, you would actually start seeing a return. Suddenly, your credit cards are working for you and you’ve created a secondary income stream that can reduce your reliance on your paycheck. However, you should start small with your investments and make sure that the risks are as low as possible to avoid having this plan backfire.
4. Take advantage of low interest rates.
Look for credit cards that have a very low introductory rate and then a permanent rate that is fixed and low. These cards are much more beneficial. You need to also make sure that you make those monthly payments on time, since many cards do have an interest penalty if you are late. The lower the interest rate is, the lower your total amount of debt will be.
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July 22nd, 2008 — Debt, Money, Personal Finance, bad debt, credit cards
The average American is currently carrying at least some form of debt, even if it is small. We live in a society where overspending is common and credit card debt has become a right of passage. In many cases, you need to be in debt in order to start building your credit history. Without this, it is hard to get a house or even a car. But the question is – how much debt is too much?
When you are first starting out, you may have a lot of student loans and this further compounds the problem. Ideally, the average person should limit their debt to three times their currently monthly salary. However, this may not be possible in many situations. There are some things that we cannot help but go into debt for, such as a car or school, but there are certain kinds of debt that you can avoid.
The key is figuring out the difference between good debt and bad debt. Good debt is hard to have too much of in most cases, especially if you are putting it to work for you. Bad debt is very easy to rack up, and can be hard to pay off. This should be the smallest part of your debts. So, what is good debt and what is bad debt?
Good debt is money that you spend on something that will give you some sort of return. For example, your student loans are good debt, since they were used to further your education and help you earn a larger salary. A car loan straddles the fence, but it is a necessity, so for the sake of argument, we’ll put this in the good debt column. A home loan is also a good debt as long as you do not overbuy.
Bad debt is debt that does nothing but cost you money. Credit card debt is the best example of this, especially when your cards are used to purchase non essentials. You can look at bad debt as something that will never have any sort of return. A $400 shirt may look nice, but it’s never going to do anything but cost you more money, ie: dry cleaning. In fact, there’s a huge risk that it will even end up being ruined and all that money will go out the door.
It is also important to remove emotional attachment from the concept of bad debt. It is easy to say, but I love that shirt and I wear it all the time. The bottom line is, it is doing nothing for your bottom line, and as such, it is bad debt.
Good debt also includes what is known as leveraged debt. This is a type of debt that you use to create another income stream. Examples of this include investments or dividends that are constantly paying you back. This kind of debt is very good indeed and will only serve to enrich you. While you should never get in over your head with any kind of debt, good debt is a lot easier to handle.
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July 1st, 2008 — Debt, Money, Personal Finance, bad debt, credit cards, credit score, good debt
For many Americans, dealing with a low credit score can be incredibly frustrating. It’s tough to get any loans and in some cases, it may even affect your prospects for employment. If you’re sick of dealing with a low score, it’s time to starting putting into motion some techniques that will help your score go up. Some people have reported a bounce of more than 120 points after using these tips, but everyone’s credit is different. However, any jump up is a jump in the right direction.
1. Request a copy of your credit report and thoroughly examine it.
Errors are incredibly common on credit reports but the good news is that you can fix these. Go through each item on your report and make sure that they are accounts that belong to you. If not, start disputing them. The big three credit reporting agencies all offer online dispute services, so you can easily get these errors off of your report. It may take up to three months for the whole process, but this is the best way to quickly get your score back up.
2. Don’t close off your old credit cards.
Most of us have been trained that all debt is bad and we immediately close off our cards when we’re trying to get back on track. While it’s perfectly fine to pay off your cards, closing the account will definitely hurt your credit. It’s actually smarter to keep a small amount on those cards and make monthly payments. You’ll get the benefit of good reporting and the accounts won’t be marked as closed.
3. Get a small personal loan.
If you have the money to pay back a personal loan, go to your bank and request a very small loan. It’s the principle of the thing that matters here, not the actual loan. You’re going to use this to rebuild your credit. It’s best if you use this loan wisely and make an investment that will create another stream of income. That way, while you’re repairing your credit, you’ll be making money.
4. Open a secured credit card.
If your credit is so bad that most credit card companies won’t even charge you, open up a secured credit card. Use it sparingly and pay it off every month. You’ll get the benefits of glowing monthly reports and you really won’t be out much.
When it comes to fixing your credit score, it won’t happen overnight, but you can make a great deal of progress by following the above tips. You should see a change in your score in as little as three months, and it will just keep getting better as you keep making those payments. Creditors will see that although you may have made some past mistakes, you’re back on track and a much less risky prospect.
Remember, not all debt is bad. When you leverage your debt with your future in mind, this is the easiest way to make money and improve your credit.
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June 24th, 2008 — Debt, Money, Mortgage, Personal Finance, bad debt, credit cards, good debt
When you see the word debt, undoubtedly the first thing that pops into your mind is a credit car bill or a car payment. For many, debt means a mortgage or other high dollar expenditures. However, there are two main forms of debt and they are very different from one another. You cannot paint them with the same brush since they are fundamentally different at their various cores. In order to better understand debt, let’s take a look at these types and discover how debt can actually be good for you, when managed properly.
Bad Debt – This is the kind of debt that most of us are familiar with. You start out in life with a boat load of student loans, and most likely a few credit cars. Pretty soon you’ve got a car payment and later a house payment. You’ve got all of these expenditures weighing on you and they add up very quickly. The interest payments make it hard to get ahead and before you know it, you may be in well over your head. At this point, most people strive to get out of debt anyway possible and start researching opportunities to consolidate their debts to make it easier to pay them all of.
This is referred to as bad debt because it works against you. The only exception would be a mortgage, since this is actually something that is going towards building your future. Bad debt is the kind of debt that results from overspending on things you really don’t need – things that can never provide you with any sort of return. Spend too much on these frivolous items and you’ve got quite a problem on your hands.
Good Debt – This is a completely kind of debt. Good debt is commonly referred to as leverage. This refers to the fact that you are going into debt in order to make more money for yourself in the future. Case in point, let’s say that you have the opportunity to invest in a new business. This business is forecast to produce $250k a year for the next ten years. It will cost you $25k to get in to the opportunity, but you don’t have that kind of cash just lying around.
You can get a loan for that $25k and turn it around to the tune of 10 times your original investment. This is good debt – the kind of debt that works for you. By using your debt to leverage multiple streams of income, you can have even greater results. The key is figuring out the kind of returns you want to get and how far you’re willing to leverage that debt.
In the right hands and with the right techniques, debt is a very powerful tool that can help you make more money, not less. When handled incorrectly, debt is nothing more than an albatross that will bog you down financially. Good debt is something that will free you from financial worries.
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June 11th, 2008 — Debt, Leverage, Money, Personal Finance, credit cards
Let’s face it, if you want to get ahead in today’s world, you’re going to need to go into debt, at least a little. The key is managing your debt properly and avoiding common traps. Not all debt is bad, even if we have been trained to think that it is. Going into small amounts of manageable debt with a goal of increasing your future income is known as leveraging your debt and this is a very smart practice.
Before you rush out and apply for credit cards willy nilly, there are a few things that you need to consider before going into debt. It is all too easy to fall into a bad debt trap, when you could have used those funds much more wisely. Let’s go over a few points that you must never forget when it comes to handling debts.
First and foremost, never go into debt beyond your means. This is not a good strategy and it rarely pays off. If you’re just starting out, you want to keep the amount of overall debt to a small amount that you could easily pay off if you had to. This helps you build up your credit score and helps you learn the ropes of proper debt management. It’s a good rule of thumb to keep your initial debts to less than three months of your current salary. This will make sure that you don’t get into too far over your head, but you should still have enough resources to leverage your debt properly.
Next, you never want to max out any credit card or blow through a loan. It’s easy to think of a loan or a credit card as free money, but it is anything but. Credit cards can have interest rates as high as 30% and once you start that process of maxing out a card, you’re going to have to deal with over limit fees, higher interest rates and it will take longer to pay back that debt. Use your loans and cards wisely, and leverage them to start making money for you. This means that you should avoid frivolous spending and focus on how to make that debt pay off for you in the future.
Lastly, it is vital to make sure that you are able to keep making your payments so that your debt doesn’t ruin your credit rating. One of the easiest ways to give yourself an insurance policy is to add up six months of your monthly minimum payments and put this aside in a savings account. If you should lose your job, you’ll have that six month cushion that will help you stay on track with paying your bills. This is a good strategy for all of your bills actually and can be very useful in many situations.
The key to proper management of your debt is using your debt for the right reasons. Spend that money wisely so that instead of ending up with a bunch of things you don’t need, you’ll have income coming in thanks to your leveraged debt.
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June 5th, 2008 — Debt, Diversification, Financial Security, Income Streams, Leverage, Money, Personal Finance, Stocks, credit cards
Many of us have the wrong idea when it comes to debt. After years of being told that it is a bad thing and should be avoided, most of us never want to get into the problem of having to deal with debt. Millions more are in over their heads with bad debt and facing the consequences. However, there are ways that you can actually use debt to improve your credit.
The is a good kind of debt that everyone can use. This is the kind of debt that you use to secure your future, not the purchase of something you really don’t need. Instead of going into hock over the latest and greatest gadgets, you can go into debt as a way of leveraging it to create more money and thereby, improving your overall credit rating.
Let’s go back to when you first tried to get your credit cards. It was probably pretty frustrating, since you have to have a little debt if you’re going to get any new company to give you a chance. You’ve got to have a track record so that the company feels secure lending you more money. This is the best lesson you can have when it comes to debt. A little debt, properly managed, improves your credit rating. Bad debt, improperly managed will ruin it.
In order to make more money, you’re going to have to spend more. This doesn’t mean blowing your money on useless things. This means spending money on stocks or new opportunities that are going to pay off in the future. Since most of us don’t have a lot of excess cash buried in the back yard, this means that we’re going to have to go into debt to start making more money.
If there is one thing that most self starter stories have in common, it’s the fact that in order to get their big break, the entrepreneur had to get a loan from the bank or even a friend. They had to go into debt in order to be successful. Even if you’re dealing with your personal finances, you’ve got to look at them as though you are a business. You need to make those smart decisions that will create more income for you both now and in the future.
The proper use and leveraging of debt can turn you into a millionaire. It probably won’t happen overnight, unless you luck upon a stellar opportunity, but with time and patience, that leverage debt is going to return much more to you than any gadget ever could. It’s going to return your financial future and it will look a lot better than you ever though possible.
Debt doesn’t have to be bad, but it does need to be managed properly. Before you get involved in using debt for new opportunities, it is a good idea to make sure that you have at least a working knowledge of good financial practices.
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May 26th, 2008 — Financial Security, Leverage, Money, Personal Finance, Stocks, business, credit card arbitrage, credit cards, margin
When it comes to credit cards, most of us think of them as a way to get things we really want right now. We may not actually “need” these things, but we sure do want them. Whether it’s a new couch, a new stereo or even a new wardrobe, we use our credit cards faithfully at the behest of our wanter. However, there is a common issue affecting most people in today’s societies. Our “wanters” are out of control and they are wanting the wrong things. There is nothing wrong with having some new clothes, but there is a better way to use your credit cards that can actually result in you having more money.
It’s time to take your “wanter” to task and retrain it. Instead of focusing on material things that you cannot do without right now, let’s talk about focusing on your financial future. Credit cards can be, when used properly, a way to secure that future and open up new opportunities. Instead of wanting all of the latest gadgets, isn’t it smarter to start wanting the things that really matter, such as more income coming in? By using your credit cards as leverage, you can actually start making more money with varing degrees of upside, effort, and risk.
There are numerous stories of film makers that used their credit cards to finance their little independent films. The films made it to the big festivals, got picked up by top distributors and went on to earn millions of dollars. Or better yet, how many Internet startups or online marketplaces have started with a found or three pyramiding their credit cards to retain a larger percentage of their company from the eventual venture capital backing… This is perhaps the best illustration of becoming wealthy using a credit card as leverage — boot strapping a business venture.
Although not a sure bet that the films or the Internet companies would make it big time, the founders were confident in their vision, and with dedication to the respective businesses and a luck, it paid off. As with all instances of leverage, there is risk. If the business failed or the film flopped the personal credit of the founder would be on the line (with a business there really is no way around putting your personal credit on the line while your cashflow is negligible.)
We’re not saying run out and run up your cards financing films or buying inventory for an EBay store. What we are saying is that by using that credit limit wisely, you can start taking the steps towards some pretty nice returns. Pick the opportunities that best suit your skill set and risk aversion level.
A low risk opportunity is low interest balance transfer offers from your exiting credit cards or new solicitations. This is called credit card arbitrage. You borrow money from a credit card at a very low interest rate and you store the money in an interest bearing account. When the low interest period draws to a close you withdraw the money and repay the credit card keeping any interest earned. With interest rates lower than in recent times the amount of money to be made this way is negligible unless you have 50K+ in spare credit card capacity.
This is relatively low risk, assuming you pay the credit card back on-time and make the monthly payments. If you forget and miss a payment then you might lose all of your earned interest in a single rate hike and interest charge.
Buying stock on margin is another form of credit leverage. It uses stocks in your portfolio and line of credit to purchase more stock than could be purchased with just the funds on hand.
The key is finding that balance between willful and negligent spending and spending for the right reasons. If you don’t manage your money properly, you’re never going to get ahead. You’ll always be treading water and trying to make ends meet. By being smart about your credit card expenditures, make more money than you spend. That way you can have the spare balance capacity to make money using credit cards.
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