Spending on Credit Cards

Spending on credit cards can become a very large problem if you do not keep track of what you are doing. If a you have one credit card, it is easy enough for you to keep track of your spending. Additionally, if a credit card has a low credit limit, that limit will be a ceiling for your spending habits. Keep in mind that I am not suggesting that you use your credit card until you “max it out.” I am merely suggesting that the credit limit, if low, will prevent you from getting too deeply into debt.

As I stated, if you only have one credit card, it is relatively simple to keep track of your spending. However, what if you have more than one credit card? Two credit cards should still be easy to track, but what about three, four, or even five cards? At what number does credit management become difficult? This is the problem that many credit users face.

I was reading a survey in the October/November 2007 edition of Young Money magazine. The article stated that of the 670 college students that participated in the survey, 22% received at least 6 credit card offers per week. In addition, a separate survey in which 796 college students participated stated that 34% own at least three credit cards (specifically, 24% of the 796 participants owned more than three credit cards). Why is this relevant? This survey (although the survey sample is extremely small) shows that some college students have more than three credit cards. Here is the point; if you keep track of each credit card (let us say that you spend $100 per card) but you do not keep track of the entire balance on all cards, you can find yourself in a deep hole.

In your mind, you may think that you only spent $100, but when the bill comes for all the credit cards, you are going to be in for a rude awakening. What if you have five credit cards? $500 is very different from $100. The point is, you have to keep track of all your credit card spending as a whole.

How Bankruptcy Can Affect Your Credit Report

A bankruptcy is probably the worst, one trick pony that can happen to your credit report. Before you decide to file for bankruptcy, you need to think long and hard about the benefits and penalties. The most obvious benefit is that most of your debts will be discharged (with the exception of certain debts like mortgages, student loans, and IRS liens), however, a bankruptcy also means that your credit report and your credit score will be severely damaged.

There are many people that advocate against using or even obtaining credit. I have actually read articles that suggest that Americans are completely ignorant as to the purpose of a FICO score, and that anybody who tries to obtain a higher credit score is a fool. In my opinion, these advocates are nuts! There is more potential harm in not having a credit score than there is in maintaining a good credit score. What does this have to do with bankruptcy? Well, if you care nothing about your credit score or credit report, a bankruptcy probable will not be a big deal for you. Your debts are discharged and off you go. However, if you are a person that realizes that a high credit score could be a great asset to possess during your journey towards achieving success, you need to know the harm that a bankruptcy will cause to your credit score and credit report.

First, your credit score will be greatly reduced. By filing for bankruptcy, you demolish your creditworthiness. You are basically telling potential creditors that you have a very high risk of defaulting on any loan, therefore, you will not qualify for most loans.

Second, if you file for bankruptcy, that bankruptcy will be reported on your credit report for up to 10 years. I would like to believe that the bankruptcy report is automatically deleted from your credit report after 10 years, but the truth is, you will probably have to contact all three credit reporting bureaus and tell them to remove the bankruptcy from your file.

Last, because a bankruptcy severely damages your credit score and credit report, you better not plan on moving or buying a car for at least 10 years. Unless you have cash to afford these things, you will either get denied for a loan flat out or your interest rate will be so high that it is not worth taking out the loan.

If your credit score and credit report are important to you, consider all of your debt management options before deciding that bankruptcy is the best choice.

When Credit Cards Become an Addiction

There are many benefits to credit card ownership. You can develop a strong credit report and a high credit score. These will result in lower interest rates for you on loans that you may take. Additionally, your debt to credit ratio could help you apply for a big loan. Another advantage is the spending power that a credit card offers. Do not misunderstand what I am saying; a high spending power does not necessarily mean that you should utilize that power whenever you want. Doing so will result in financial hardship and probably, some legal issues.

One definition of “addiction” is “the state of being enslaved to a habit or practice.” Therefore, is it possible to be addicting to credit card spending? I believe that it is possible to be addicted to such a thing. Continuously using your credit cards without regard for the financial and legal consequences sounds like an addiction to me. Keep in mind, I am not a doctor of any kind and therefore am not qualified to give an opinion as to a person’s psyche. However, irresponsible credit card use can be a serve problem if a person does not know how to control the problem.

Solving the problem of irresponsible credit card use requires preventative measures. Teaching a person the possible dangers of irresponsible credit card use is the first step towards creating a responsible credit card user. Educate yourself as to the correct and responsible way to use credit cards. This is the best way to safeguard yourself against irresponsible credit card use.

Although this is sound advice, how do you kick the credit card spending habit after you are already “addicted?” Your primary concern should be for your financial welfare. Because of this, you may have to close all of your credit card accounts in order to achieve this primary concern. Closing all of your credit card accounts will negatively impact your credit score, however, it will save you from the continuous spending. Credit scores and credit reports can be repaired, however, your financial welfare is much harder to fix.

Remember, credit card ownership is a privilege. Therefore, if you cannot handle the responsibility of credit card ownership, do not get a credit card. There are other ways to build a credit score and credit report, and if you cannot do it with credit cards, you will have to utilize other methods.

Credit Card Safety: How to Check your Statements

Checking your credit card statement is an important practice to establish. Many times, people just look at the minimum amount due or the balance and pay that amount. The problem with this is that they may be paying for a charge that they did not make or that was incorrectly calculated.

I have a story for example purposes: many quick cafés and small coffee shops have a small device that they use to swipe your credit or debit card to pay for your purchase. You may have noticed that some of these machines require that the employee type in the amount to be charged. The coffee shop I was at had one of these machines. My total was $6.07, however, the coffee shop employee accidentally added a zero to the end of my total. Therefore my $6.07 charge became $60.70. Luckily, I caught this error when I went to sign the receipt. The problem was immediately handled, however, had I got my credit card statement and just decided to pay the balance without looking at the charges, I would have paid about $54 more than I should have.

The point is, mistakes happen. Therefore, you should always check your credit card statement to make sure that all of the charges that appear on your statement are legitimate.

Credit Card Woes to Consider Before you Apply for your Credit Card

Put in simple terms, you need to be responsible with money before you should even consider applying for credit. If you have trouble managing your finances, obtaining a credit card is only going to add to the problem. You may be tempted to purchase expensive items even though you do not have the money to pay off the charge; you may build a large debt with improper credit card use; you may also be paying more in interest than you ever do in principal. All of these things will damage your already struggling financial situation. Do not add to the stress.

Assuming you are responsible with your finances, a credit card is a powerful financial tool that can help you achieve whatever financial goals you may have. However, high fees, high interest rates, and improper use can quickly plague any advantage a credit card may give. Beyond that, there are also other factors to take into account before applying for a credit card.

There is an old saying, “out of sight, out of mind.” This is true when it comes to credit cards. The temptation of using a credit card is strong if you really want to buy something. This temptation can be avoided if you do not have the means with which to buy the item. Therefore, if you have a “temptation problem” leave you credit card at home. If you have a serious “impulse buy” problem, you need to consider this before applying for a credit card, and you may need to reevaluate your purpose for getting a credit card.

Another problem or woe you need to consider before applying for a credit card is the time frame of credit card bills. Many people do not consider the fact that their bank account decrease during a standard billing period. Therefore, if you have the money to pay your bill at the first of the month, that does not necessarily mean that you will still have the money at the end of the month. Other bills such as gasoline, food, water, mortgage or rent, utilities, cell phone, etc are also paid monthly. Therefore, consider whether you can really afford to pay another bill (in this case a credit card bill) before you decide to apply for the credit card.

Last, because credit cards are so easy to use, many people do not keep track of their spending. Not until they go online to look at their statement do people realize how much they have really spent. If you are a person that keeps track of his/her finances only because the internet provides you with a balance statement, you need to establish better spending tracking practices so that you do not end up spending more than you can afford.

The common woes will always be interest and fees, however, temptation to buy, time frame budget considerations, and keeping track of your spending are big considerations that need to be evaluated before applying for a credit card.

Things You Need to Know Before Applying for a Credit Card

Applying for a credit card is an interesting step along the financial journey of a person. There are many rewards and pitfalls accompanying credit card ownership and use, however, if you use credit responsibly, the rewards will shine through and the pitfalls will be minimized.

First, you need to know your purpose for getting a card. If you want a credit card to buy something you cannot afford or because it makes you feel like a responsible adult, then a credit card is probably not right for you. However, if your purpose is to establish a solid credit report and credit score and to build your creditworthiness, then a credit card can be an important tool to achieve these goals.

Second, you need to know if you have a credit report or a credit score. If you do, you need to obtain a copy and know what is contained in the report. If you do not have either, this information is also helpful. The point of discovering this information is to help you determine the credit cards for which you qualify. There is no need to apply for a card that has requirements that you cannot meet. Therefore, find out this information to narrow your available options.

Third, you need to know your limits. This means that you need to know your yearly salary and how high of a limit you can afford. Additionally, you need to know whether you want to pay over time or in a lump sum every month. Knowing these limits (i.e. yearly salary, affordability, flexibility of payment, etc.) will help you make a wise credit decision.

Last, you need to know the interest rates and fees associated with the card in which you are interested. Never get a card with an annual fee and focus on cards with low, fixed interest rates. Avoid cards that have a low introductory interest rate that resets to a high interest rate. Additionally, avoid cards with a variable interest rate. If undervalued by the applicant, these rates and fees can add up quickly and make the credit card have more pitfalls than rewards.

Discover your purpose for getting a card, find out your relevant credit information, know your limits, and find a card with good rates and little to no fees. Knowing these specific points will help you make a wise credit decision from which you could benefit for years to come.

Should the Rules on Applying for Credit Cards be Tighter?

This is a question of much debate among people of all kinds of financial and educational levels. The proponents of such a measure believe that “tightening” the requirements to apply for and obtain a credit card will help protect people against irresponsible credit card use. These people think that credit is evil and that only a select few, if any, should possess it.

The opposition to such a measure believes that credit itself is not evil and that financial education is the means by which to prevent credit misuse. These people also believe that restricting the means to obtain credit will have an overall negative economic effect.

I agree with the latter. Restricting the means to obtain credit effectively prevents poor and middle class people from obtaining credit. One cannot restrict the obtainment of credit based upon credit score because one cannot have a credit score until one obtains credit. Additionally, one cannot restrict the obtainment of credit based upon monthly or yearly income because, as stated above, this effectively prevents the poor and middle class from having credit.

The truth is, I have yet to hear one good reason as to why credit requirements should be “tightened.” Some people point to the current real estate market and credit crunch as reasons why credit card obtainment should be restricted. This is a very unreasonable way to think. Basically, these people have concluded, “it is bad, therefore, is should be taken away.” The first flaw in this conclusion is that credit is not bad; credit is a powerful financial tool that can help you achieve monetary success.

The second flaw in the conclusion is the remedy (that credit should be taken away). If this is the case, how are people supposed to purchase a home, a car, or pay for college, to name a few. The people that propose such a remedy do not consider all of the good things that credit can provide (most notable a place to live, a car to drive, and an education).

The point is, credit card requirements should not be “tightened.” In my opinion, the answer is to better educate people as to the dangers of credit misuse and as to the advantages that credit can provide if proper credit use is practiced.

A Basic Guide to Credit

A credit guide can be summed up in three steps: (1) establish it; (2) maintain it; and (3) use it responsibly. There is nothing easier. This is the shortest way to credit success and also happens to be one of the best plans you can follow.

(1) Establish It

A person that tells you to never get a credit card is giving you bad advice. It is that simple. Despite what some people may think about credit card companies or credit in general, the fact is that we live in a time when a credit score is a powerful financial asset. Becoming monetarily successful is difficult enough without cutting off a significant financial asset. Establish credit by getting a low interest rate credit card.

(2) Maintain It

Many people have no idea what is in their credit report. Always do monthly checks of your credit reports in order to prevent identity theft. Additionally, you should check your credit reports monthly in order to make sure that no inaccurate information exists. Inaccurate information will affect your credit score.

(3) Use It Responsibly

This is the most important step. Credit is a privilege, not a right. Do not misuse your credit and you will have nothing to worry about. Do not charge something unless you have the money to pay it off; a credit card is not an alternative to lack of cash! Pay more the minimum balance in order to minimize interest payments. If you use your credit responsibly, you can always negotiate with your credit card company for a lower interest rate and a higher credit limit.

Following these three easy steps is the most basic and most successful guide to credit. In sports, the best teams are the ones that do the simple things well; the same is true in credit.

The Effects of Debt on Your Emotional Well Being

I have seen debt cause more stress than most things or problems that people encounter throughout their lives. Debt is an interesting beast. People become so consumed by debt that it is all they think about. Like being told you have a terminal disease and are about to die, people lose sleep, lose their appetite, and let their personal life (including a marriage, children, significant other, and/or friends) suffer because of the constant worry of making next months payments. People actually risk their health with this amount of built up stress.

The good news is, there are ways out of debt. The better news is, once you are out of debt, there are ways to control your debt so that you never have to experience those feelings of worry again (at least not because of debt).

Depending on your situation, cutting costs and balance transfers, consolidation, and bankruptcy all are options to consider. Obviously, some of these options will negatively affect your credit score, but that can be rebuilt. Choosing between your health and your credit score should not be a difficult decision. The point is, you have to take action to change your situation. Stressing out every month at the expense of your health and your personal life is the worst thing you can do. Change this circumstance by doing what is necessary to get out of debt.

Getting out of debt is the primary concern. When you start to notice the decrease in you debt, you will start to feel better. You will notice a relaxing feeling like everything is going to be okay. It is a great feeling, therefore, to maintain this feeling (as far as debt is concerned), you need to manage your debt.

The bottom line is, like always, use credit responsibly. All of these problems could have been avoided had you stepped back and assessed your situation during the debt accumulation process. Control your debt and you will be able to take your life back.