How Much Credit is Too Much?

Credit is an important financial tool to possess. Having good credit can help you get loans and can save you money by way of lower interest payments. Therefore, should you need to obtain a loan for investment purposes, having good credit will help you get that loan. Additionally, the investment that you pursue could help you make money and thus, the loan that you took effectively made you money. However, all of this is possible only if you have a good credit. Therefore, it is in your best interest to obtain and maintain good credit.

There are certain things that factor into your credit score. One such factor is your credit to debt ratio. The higher your credit to debt ratio, the better that it is for your credit score. In other words, if you have a lot of available credit and a little bit of debt, lenders look at this favorably. Ideally, you should have no more than 30% of each credit card's credit limit in use. Additionally, your total debt should be at most 30% of your overall credit. For example, if your total available credit is $50,000, you should have no more than $15,000 in total debt.

Having a lot of credit is good as long as you make sure that you follow certain guidelines in obtaining such credit. Such guidelines include not acquiring the credit too quickly and not to use it as soon as you get it.

Acquiring credit too quickly is looked upon with disfavor in the credit reporting bureaus. This is a fact because the bureaus believe that when a person acquires a lot of credit quickly, they are set to incur a lot of debt. As such, your ability to repay such debt, if acquired, may be impaired. Obviously, is you cannot pay your debt, this will negatively affect your credit score.

In accord with the above paragraph, should you incur a substantial amount of debt immediately after you obtain your credit, your credit score will be decreased. This is bad because the whole point of obtaining more credit is to increase your credit score.

It is important to know that even though having a high credit to debt ratio can increase your credit score, you should not have too much credit because you may be tempted to use it. Having a high credit limit can be abused should you start to utilize it wastefully. Therefore, if you are tempted by credit cards, you probably should not have too high of a credit limit.

Maintain a high credit to debt ratio, never have more than 30% of your total credit in use, and do not acquire debt too quickly or else your credit score will suffer.

How to Create a Debt Elimination Plan

Getting out of debt is the quickest way to becoming financially secure. It is important to note that not all debt is bad. There is such a thing as good debt. Good debt is debt that makes you money. For example, a real estate development loan from which you can collect rents as a result of a commercial development is good debt. Therefore, your debt elimination plan should focus on your bad debt. Bad debt is debt that costs you money. An example of bad debt is credit card debt. Another common bad debt is a car loan. Cars depreciate in value and thus, taking out a loan to buy a car will cost you money.

Eliminating your bad debt is important should you want to achieve financial security. The most important thing that you have to realize is that, absent you winning the lottery or inheriting a large sum of money, your bad debt is not going to disappear overnight. Therefore, getting out of debt is a process. The point is, however, should you stick to an economically feasible plan, you will start to notice a drastic decrease in your overall debt. Therefore, you will pay less in interest payments and thus, will save money on your debt.

A very common mistake that people make when enacting a debt elimination plan is that they continue to accumulate debt while trying to pay off the same. The debt payments that you make and the debt reduction techniques that you enact will be for not if you continue to offset these advances by accumulating more debt. You cannot reduce your debt and create more at the same time. Therefore, if your debt elimination plan does not include a plan to prevent the accumulation of debt, your debt elimination plan will be useless.

In order to have an effective debt elimination plan, you have to pay off the highest interest debt first. Your highest interest debt will most likely be your credit cards. Therefore, you need to pay off your credit cards first in order to get out of debt more quickly and to decrease the amount of money that you waste on interest payments. This is not to say that you should refrain from paying your other debts during this time. Put simply, you have to contribute more of your payment dollars to the higher interest items. Therefore, for example, should you have $100 per month to pay of your debts and one debt has a 22% interest rate and another debt has a 7% interest rate, you should pay a certain percent to each debt, the higher one to the 22% interest rate (for example, you might want to pay 80% to the 22% interest rate (which would be $80) and 20% to the 7% interest rate (which would be $20) so that you can pay off the higher interest debt sooner).

Focus on your bad debt, be patient, refrain from accumulating debt while paying off your existing debt, and pay the higher interest rate debt first. Doing this will insure that your debt elimination plan is a success.

How to Avoid the Credit Card Trap for College Students

For most people, college is the first time in their life that they are living by themselves. This means that they have to pay bills, get a job, make adult decisions, and take on adult responsibility. It is also usually the time when a person gets his/her first credit card. As such, this can be a time of tremendous financial hardship and temptation.

Many college students abuse their credit card. College students see a credit card as an extra bank account. However, they quickly forget that every dollar they spend with the credit card has to be paid back in full, with interest. Additionally, because these are college students, the credit card usually carries an extremely high interest rate. This means that it is very easy to accumulate more debt that you can handle.

In order to avoid becoming a victim of credit card debt, you have to know from the beginning that credit is a tool that can either make or break your financial future. You do not want to leave college with a low credit score.
Doing so can prevent you from getting student loans (should you want to go to graduate school) and can also prevent you from making the "big" purchases in life (for example, a home or a car). Therefore, the solution is to prevent yourself from being put into this position.

In order to prevent being put in the position of having too much debt, you have to realize that debt takes time. You do not go to bed one night with no debt and wake up the next morning with $10,000 of credit card debt. Debt accumulation is a process of bad choices. If you realize this and you notice that you are being careless with your credit card, you can break the cycle before it spirals out of control.

Another way to prevent a large accumulation of credit card debt is too limit yourself to one credit card.
By having only one credit card, you cannot get yourself in too deep should you start to abuse the privilege of having credit. Additionally, make sure that the limit on your credit card is no more than $500.
This is another "safety net" that you can put in place in order to avoid overusing your card.

The best way to prevent credit card debt accumulation while in college is to use the credit card for emergencies only. An emergency is not a late night run to your local fast food restaurant. An emergency means your car broke down on the highway in the middle of nowhere, you have no cash, and the tow truck costs money.

Realize that credit is a privilege, keep track of your spending and break the cycle before your debt gets too big to contain, keep only one card and make sure the credit limit is not above $500, and use your card for emergencies only. Follow these tips and you can leave college with an A+ credit score.

How to Lower Interest with Credit Card Consolidation

Depending on what kind of credit cards you have, you may be paying an extraordinarily high interest rate. For example, credit cards offered on college campuses tend to have higher interest rates then credit cards offered at banks. Additionally, "student" credit cards tend to have higher interest rates than traditional credit cards. This is generally true because college students and young adults are just starting to establish their creditworthiness. As such, to offset the risk of giving credit to somebody without an established credit history, credit card companies charge higher interest rates and annual fees for these cards. The interesting thing is that you probably still use some of those cards today even though they are inferior to other credit products available to you.

It is important that you do not close these high interest credit card accounts (there is an exception discussed below). Closing a credit account will negatively affect your credit score. As such, in order to save money and your credit score, you should consolidate your debt onto one low interest credit card.
Consolidating your credit card debt onto one low interest credit card can save you money in more ways than one.

First on all, your old credit cards or your high interest cards carry a far higher interest rate than do other, easy to obtain credit cards. Additionally, many credit cards offer zero percent interest for up to one year on balance transfers. Therefore, if you transferred your debt from your high interest card onto a zero percent interest card, you would save a lot of money in interest payments, and you would pay down your debt faster.

Annual fees usually accompany high interest credit cards as another mechanism to offset the risk of the credit card companies. Annual fees are pointless. The only time a credit card should have an annual fee is if it is a charge card (if it is a charge card, you pay no interest and therefore, an annual fee is the only way for the company to make money). As such, if your high interest credit card has an annual fee, you should call that credit card company and see if you can get that annual fee eliminated.

If the credit card company is unwilling to accommodate you, transfer your balance on that card to a zero interest card and close the account. By closing the account, your credit score will take a small hit. However, this small hit is easily offset by maintaining a good history with the new zero percent interest card. Additionally, you will no longer have the expense of an annual fee.

Save yourself the expense of high interest and annual fees by consolidating your debt onto a low interest or no interest credit card.

Teens and Car Insurance: Who Should Pay?

Teaching teenagers financial responsibility is vitally important. Good financial lessons at an early age carry over to successful money management when such teenagers become adults. As such, you should educate your teenager about savings, credit, investing, and real estate, to name a few subjects. Doing so will help your teenager avoid common money traps that snare many young adults.

One of the most important financial lessons to teach teenagers is the effort that it takes to earn an honest dollar. As such, if your teenager wants to get a job, you should let him/her to the extent that the same does not interfere with his/her education. Additionally, once your teenager is working, he/she will start to understand that you have to work for things that you want in life. Therefore, if they want to spend there money on something, they will know the effort that is required to obtain the same.

One item that it seems that every teenager wants is a car. As we are all well aware, a car can be a very expensive purchase. Outside of the actual cost of the car, you have to pay for gas, oil changes, insurance, registration, and maintenance. These costs can add up and thus, should you get your teenager a car, he/she should have to pay for some of these expenses. On such expense that a teenager should pay for is insurance.

Having your teenager pay for insurance is good because it will help teach financial responsibility. Additionally, because insurance can be costly for a teenager, he/she will respect the car and thus, take better care of the car that he/she has. Teenagers, like all people, respect things more if they pay for it. Thus, although the cost of the car may be outside of the financial realm of your teenager, the insurance payment is not. As such, your teenager should make this payment.

Insurance can be expensive and as such, if your teenager does not have a job, he/she will not be able to pay for the same. Therefore, making the condition that in order for your teenager to get a car, he/she has to pay the insurance will make your teenager take on the responsibility of getting a job and of maintaining his/her finances in order to pay for the monthly insurance payment.

Teach you teenager financial responsibility by having him/her pay for his/her own car insurance. Doing this will make your teenager respect his/her car more and will help your teenager appreciate the work it takes to earn enough money to pay for such an expense.