The Thrifty Credit Card Holder

Credit cards are useful financial tools and like any tool, they need to be effectively managed. Learning to use a credit card responsibly is an important step in developing financial common sense.

Here are 5 basic credit card tips. . There are many others, I'm sure, but this is a good starting point!

1. Treat your card like a debit card. Your credit card is not "extra money". It is a loan that has to be repaid. So, don't spend money you don't have.
2. Don't sign up for cards you don't need. If you get unsolicited card offers, don't sign up for that card. You probably don't need it -- which is why you didn't seek out the credit card company yourself.
3. If you use credit cards, pay them off each month. Carrying a balance on your card can add up to hundreds of dollars each year in interest.
4. Don't use credit cards for groceries. Buying things like groceries with a credit card unless you pay it off each month is a no-win situation. Recurring items like groceries will only tend to increase your credit card each month.
5. Pay your card on time. Late card companies can charge huge fees for paying late.

Credit cards are certainly "OK" when used wisely. Also, some things, like on-line purchases or renting a car, require a major credit card.

They are also important in helping you create a good credit rating. Just keep in mind the total cost of using the card and that the credit card companies are not your friend!

What Is A Charge Off?

If you consider yourself as someone with bad credit, chances are that you have at least one or more “charge offs” on your credit reports. A “charge off” is a fairly generic term used in the debt and credit industry. A charge off is a term that simply means that the original creditor has given up collecting a delinquent debt. Once the creditor exhausts all collection efforts, it will typically charge the debt off and sell the debt to a third party.

For example, in the case of a delinquent credit card bill, the creditor usually attempts to collect the debt for approximately six months before determining that the debt should be written off or charged off. The creditor suffers because it has lost money on the loan, but experiences a tax benefit by writing the debt off. The creditor is allowed to deduct any charged off debts from its profits which mean it pays less income tax because of the lost profit directly related to those debts.

For consumers, a charge off can be devastating from a credit history perspective.

Next to repossession or foreclosure, a charge off is about the worst mark a person can have on his credit. It can prevent you from getting approved for a mortgage, car loan, credit card, or nearly any other type of new credit. Further, a single charged off debt could create multiple separate negative marks on a person’s credit history. This is due to the fact that a debt could be bought and sold multiple times as each party tries to recover lost profits.

Using the credit card example above, let’s assume that a credit card account is charged off. It may be sold to the highest bidding collection agency for thirty cents on the dollar. If that collection agency is unsuccessful in collecting the debt, they will likely cut their losses and try to sell that same debt to another agency for ten cents on the dollar.

As debts become older they are typically more difficult to collect. Debtors are less likely to pay old debts. Plus, the debt gets closer to the statute of limitations which is a point when reached, gives the debtor a “get out of jail free card.” A debtor has no legal obligation to pay once the statute of limitations runs on a debt.

In any event, as the debt is bought and sold over and over again, it is likely that each collection agency will place a negative mark on the person’s credit report. Some consumers report a long trail of charge offs on their credit report for a single debt!

This may sound egregious to some people. The Fair Debt Collection Practices Act and the Fair Credit Reporting Act police credit bureaus and collection agencies and prohibit them from providing misleading, inaccurate, or unverifiable information. It does not specifically prohibit a string of collection agencies from this practice. Although it is implicit that a collection agency should remove a credit report charge off mark once they sell a debt, it does not mean it is always diligent in doing so.

Therefore, the burden often falls upon the individual consumer to remove the inaccurate items by way of dispute letters, investigation requests, etc. Thus, a person dealing with even a single charged off debt may have a lot of work to do if they want to clear their credit history of charge offs.

In sum, a charge off is something that consumers should try to avoid if possible. If you are delinquent on an account, try negotiating directly with the creditor. It is both in the best interest of both parties to avoid a charged off debt.

Credit Score Info

Your FICO credit score is a numerical score derived from your financial activity over the life of your credit history. FICO credit scores change frequently with new activity in your credit report. It can range from a score of 300 to 850, with 850 considered excellent and 300 considered very bad credit. Your FICO score is the number banks and other financial institutions use to decide whether they will loan you money or not. The better your FICO credit score, the more likely you will get the loan.

Things such as late credit card payments, or other bill payments, have a very negative impact on your score. For example, someone with an average good credit rating of 700, can increase their score by as much as 20-25 points, simply by making all of their monthly bill payments on time. Increasing debts can have a negative affect your credit score. By maxing out all of your credit cards you can lower your credit score by as much as 60 to 100 points.

The FICO Score Scale - 300 to 850

700 - 850 -- Excellent or Very Good Credit

680 - 699 -- Good Credit

620 - 679 -- Okay or Average Credit

580 - 619 -- Low Credit

500 - 580 -- Poor Credit

300 - 499 -- Bad Credit

Knowing where in this spectrum your FICO score is located can help you determine the types of loans and interest rates that you can expect to receive. The more you educate yourself on your own personal financial situation, the more you can do to improve it and make the most of your money.

Make it a priority to know what's in your credit report and what your FICO credit score is. If you let your credit score drop, it could take many years to get it back on track, and could also lead to financial disasters.

How Do I Check My FICO Score and Credit Report?

Now that you are aware of how your FICO score impacts your finances, you may be wondering "How do I get my free online FICO score?"

Easy, To learn more about obtaining a free online credit report, visit http://freeonlinecreditcheck.googlepages.com/, an excellent resource on credit reports and your credit score. There are dozens of websites that offer totally free credit reports.

There are so many, in fact, that it can be a little bit overwhelming when trying to decide which company to choose. Some things to look for when choosing a credit reporting service are: ease of use, customer service and assistance, detail of reports, accuracy of reports, and whether they offer to assist in repairing your credit score.

Debt Repayment Planning

Many people who have debt blindly make their minimum payments each month without a single thought about paying off the debts.

Showing an interest in reducing your debt is a big step. Let one big step lead to another by finding out how to put together a plan to eliminate your debt.

When you're overloaded with debt, it can be difficult figuring out how to best tackle the debt. You have to figure out which accounts you should pay, in what order you should pay them, and how much you need to pay to eliminate your debt. By attacking each of these hurdles one by one, you can tailor a plan that fits your budget and debt load.

Calculate Your Total Debt
To make a plan for getting out of debt, the first thing you need to do is figure out who and how much you owe. Start by getting a copy of your credit report. Your report will contain all of your financial obligations from institutions that report to the major credit bureaus. Your credit report might not contain all your debts, so you should also use recent statements from your creditors to complete your list.

On a single sheet of paper write down the name of each creditor, total amount owed, monthly payment, and interest rate for your accounts. Depending on your goals for getting out of debt, you may want to consider only bad debt, such as credit cards and small loans.

Your list, for example, might look like this:

• Visa credit card, $780, $47, 11.9%
  
• Macy’s credit card, $1515, $89, 18.9%
  
• Bank of America loan, $900, $55, 7.8%

Prioritize Your Creditors
Once you have a complete list of your debts, you should figure out how you want to pay them.
When it comes to the cost of having debt, the best way to pay your debt is by paying off those with the highest interest rates first. Rank your debts in order from highest to lowest according to interest rate. This is the order you’ll repay your debts.

As an alternative, you might consider paying off your smallest debts first. If your high interest debts also have high balances, you could end up paying on a single account for months before the entire balance has been repaid. Since smaller debts are repaid quicker, many people prefer to pay them first.

You should choose the method that will keep you motivated to pay off your debts. If optimizing your payments is most important, then the high-interest method is best.

Determine How Much You Can Pay
Another crucial component of your plan to get out of debt is the amount you can afford to pay on your debt each month. To come up with this amount, you need to figure out your discretionary income. This is the amount you have for spending after all your financial obligations have been met.

Total your income from all reliable sources including wages, alimony, child support payments, bonuses, or dividends. Then, subtract what you spend each month on required expenses, those items you need for survival. Required expenses include mortgage or rent, utilities, food, transportation, medical expenses, and your current debt payments. This calculation will result in your disposable income.

With your disposable income in mind, you can figure out how much you are able spend to repay your debt each month.

Make the Plan
Now you that know how much you will be spending to pay off your debt, you can complete your plan. Put all of your debt-spending money towards your highest priority debt. This will either be your smallest debt or the debt with the highest interest rate, depending on the method you choose. Pay this amount plus the minimum payment every month until the debt has been completely repaid. Continue making the minimum payments on your other debts.

Once you've paid off the first debt, combine the minimum payment from that debt with the extra amount you’ve allocated for repaying your debts and put it towards the debt with the next highest interest rate (or next smallest balance). Repeat this process until your debts have been completely repaid.

Let’s say you’ve decided to spend an extra $300 each month to repay your debts. Using the previous example, you should start with the Macy's account because it has the highest interest rate.

1. Macy’s credit card, $1515, $89, 18.9%
2. Visa credit card, $780, $47, 11.9%
3. Bank of America loan, $900, $55, 7.8%

Each month, make a payment of $389 ($300 plus the minimum payment) until the debt has been repaid. Even though your minimum payment will decrease as you pay off the balance, continue sending $389. The same goes for your other debts, too.

Using the example from above, your plan will look something like this:
• Macy’s: $389
• Visa: $47
• Bank of America: $55

Once you have repaid Macy’s you should repay Visa, the account with the next highest interest rate.

Your payment should be $436, the $389 you were paying to Macy's plus the $47 you were already paying to Visa.

Update your plan.
• Visa: $436
• Bank of America: $55

Finally, when you have repaid the Visa account, use all $491 to repay the Bank of America loan.

Working The System

Friday night and the phone rings... you know the call, it's late, the last bite of dinner on your plate, and all you want to do is watch TV and relax. Guess who's calling? Yes, it's a mortgage company that's trying to sell a refinance deal!

The girl asks about my mortgage, my rates, and my credit card debts--and I do reply. After all, I'm always curious about getting a better loan (plus, I like to throw them off their scripts).

I ask her what their best rates are. She tells me that it depends on my credit history. I said, "Okay, say I have a credit rating like Bill Gates. NOW what's your best rate?" She said that she can't quote a rate; however, the loan officer would let me know. So, I agreed to have the loan officer give me a call.

On Monday, while I'm trying to set up the new DVD player, the phone rings. Guess who? It's the loan officer. Let's just call him Kevin. Well, okay, so Kevin is really his name. I'm not going to change names to protect the innocent.

Kevin starts his spiel about how he can save me money on my $110,000, 30-year, 6 7/8% mortgage and $15,000 of credit card debt. I asked him what his best rates are and he told me it varied depending on my credit score, which he could check if I tell him my social security number--I don't think so! There's no way I'm giving that out over the phone. If his deal sounds real, then I'll ask for paperwork to be sent through the mail.

I told him to assume that "my credit history is the best of anyone on earth and in this universe. Now, what is your best rate?" He told me 6.5% with 1 point.

He went on to explain that, unlike other mortgage companies that ask for the 1 point at closing, they "conveniently" include that amount in the mortgage principal. I told him that 6.5% isn't that much better than my 6 7/8% (6.875%), and when you throw in the 1 point, then your "best" loan is really around 6.6%.

That's when he asked me what my credit card rates are. I told him that my credit card debts are at about 1.99% APR, which are a little high since I had the entire $15,000 at 0% for the prior 20 months.

Kevin said that I'm really not getting 1.99% and that there's no way I ever got 0%. He said, "Tell me where I can get those credit card rates?"

I told him to look in his mailbox. That's where many great credit card deals are found. And most really good ones are offered from your current banks.

He still didn't believe me and said that if I look at my statement, I'd see that I was really paying 16% or more. I explained that when I had those 0% deals, my credit card statement would arrive and show a balance of $15,000, and under "finance charges" the total is "$0.00."

His response was, "Think about it, Scott...why would a bank give you 0%. They're not making any money!"

I said, "To get new customers."

Kevin then told me that it doesn't make sense that they would do that. I said, "Well then, does it make sense that Publisher's Clearing House gives away $10 million, or that McDonalds gives away millions in prizes? Why do they do it? To get business."

Why do the banks offer 0%? Because they think that I'm going to forget that the offer ended and let my rate bounce to 15% (or more). I'm not!

I'm simply going to transfer my balance to another low-rate offer when their offer ends. Overall, the bank will make money because most people (not DebtSmart readers--we're all too "debt smart") are not going to notice that the rates have been increased or will be too lazy to continue transferring balances.

After I told Kevin how I keep transferring my balances, he said pretentiously, "So you're manipulating the system."

I said, "I'm taking advantage of my best loan options. You just called me and are trying to get me to transfer my mortgage and credit card debt to YOUR bank. If I decide to use your offer, am I then 'manipulating the system'?"

That comment really caused Kevin's brain to freeze up. Almost as locked-up as Windows 98 with 20 open applications. He was forced to shut down and restart.

He finally replied with, "Well no."

"So then, if I use the other bank's offers, I'm 'manipulating the system,' but if I use your offer, then I'm not. Is that right?"

Kevin said, "Well I guess you're just being smart."

You see my friends, there is a stigma about transferring balances. People say that you're "credit surfing," that you're "manipulating the system", "using Peter to pay Paul" (I don't owe Paul anything) or "paying one credit card with another."

Hear me on this...DON'T listen to these myths. Don't be brainwashed by this dogma! It's always smart to use your best loan options! It's doesn't matter how many times you switch cards. You're always going to save money when you pick a better loan deal.

Kevin changed the subject by trying to give me numbers for his refinancing deal. He said that my payments, with his 6.5%, 30-year mortgage for my $110,000 would be about $750.00 per month. Of course, with my calculator always handy--I told him that the payments are more like $695.28. In fact, they are exactly $695.28. He said that he's including his 1 point fee in the payment.

Well then, according to my numbers, the payment is $702.23. I asked him how he's coming up with $750. Kevin said, "It's obvious that you have a calculator there."

My response was "Yeah, I have a calculator here. What do you have there? Whatever you have doesn't seem to be able to come up with the correct payment."

Finally, since he can't talk about facts anymore, he starts to get emotional and says, "Look, I've been doing this for years. I do this all day. What type of work do you do?"

"I write and publish books, I run a web site, write an email newsletter." However, I never did mention to Kevin the subject matter.

Lastly, I should say that Kevin was nice, and I do want to thank him for calling because it resulted in this informative article.

Using Credit Cards To Pay For Christmas

What a bad idea.

Using plastic to pay for your Christmas. To buy your spoiled brat kid the latest toy or game that they will forget about in a month. To show that you love your friends and family so much that you're willing to go into debt for them.

In the run-up to Christmas, cash registers across the country will be ringing as millions of consumers head to the streets and on to the internet to find the perfect Christmas presents for their friends and family. With the added cost that Christmas brings, many people choose to put their spending on a credit card, but recent research has suggested this is not the best way to ensure you have the funds to cover the perfect Christmas.

According to research from the new money saving website Savebuckets, around four in ten (41 per cent) used credit to pay for Christmas in 2006. However, just 29 per cent of those who used credit to fund their festive few days had paid their credit card off in January, while one in five are still paying for their Christmas spending, more than ten months after the event itself. With certain ones attracting high interest on any long-term balances, cheap loans could be a better way of paying for the time.

Marc Ames, marketing manager of Savebuckets, said: "Many Britons have struggled to pay off their credit card spending from last Christmas. With rising costs of living and interest rate hikes curbing spending power this year, it is likely that many will have to make cutbacks this Christmas." With a cheap loan, the debt hangover could possibly have been reduced.

The message to use personal loans to fund the cost of Christmas has been supported by Sainsbury's Bank, suggesting that a personal loan is, in certain cases, a better method for using credit to buy presents than a credit card is. However, Steven Baillie, head of loans at Sainsbury's Bank, stressed that the use of it for Christmas is dependant on the kind of festive purchases you will be making. "It really depends on what you're buying for Christmas. If you're buying that car for Christmas then I can understand it," he said.

Mr Ballie also said that despite the current consumer debt crisis, personal loans are still a very viable form of lending for people considering credit: "There's no doubt about it [that personal loans are a sensible way to borrow a large sum]. It comes back down to doing your homework, understanding that you're getting the best rate, understanding all the clauses, the small print etcetera, so there are no hidden charges."

The Savebuckets survey revealed that consumers from London are the most likely to borrow money at Christmas time, with 45 per cent falling into this bracket. Following London were East Anglia, Wales and Lancashire with 44 per cent borrowing to fund the festive spending. At 875 pounds per person, Lancashire was found to be the region with the highest spend at Christmas, followed by the Midlands (851 pounds) and the south (845 pounds).

Britannia earlier this year suggested that people were not planning for their Christmas spending ahead of time, which could lead to more people needing personal loans to finance their Christmas purchases. Almost one in four (37 per cent) said they would borrow money to cover the cost of Christmas.

In May this year, a survey by Thomas Charles revealed that more than a third of those over the age of 55 struggled to make their monthly repayments on personal loans and other borrowing. In younger age groups, the problem was also apparent - although not as prevalent - with 24 per cent of the 34 to 45 age group struggling to meet repayment demands. Director of the firm James Falla said that due to this "buy now, pay later" culture, it is "inevitable" that some groups would therefore run into financial difficulties.

Credit Card Debt 101

Credit Card Debt is known to have ruined the lives of many people financially.

Most credit card owners do not realize the scary fact that credit card debt may take a long time to repay, especially if they are burdened with high interest rates. So in short if you do not have the funds available to repay your debt, it can mean serious financial implications for and your family if you're married.

Credit Card Debt Facts
Studies have shown that card debt and personal bankruptcies have increases bank profits to the highest level in the last five years.

An ever increasing number of credit card holders were unable to manage their finances that lead to credit debt, due to the convenience of using credit cards, can lead to a false feeling of financial security and being in a "comfort zone".

When these credit card holders encounter problems with their debt it casts self-doubt on their ability to manage themselves financially.

Most card applicants do not read the "fine print" on the contract documents that they sign and apply for high interest cards without themselves realizing it.

Most people with debt on their credit card are having difficulty in paying high interest for their card debt, resulting in paying more on interest than the actual payment on the previous month's expenditure.

Ideas to Eliminate your Card Debt
Most people with debt and on the brink of bankruptcy do not realize that only they, themselves, are responsible for their bad debt situation, and that by taking immediate action, they can stop the vicious circle of debt.

Start to plan on exactly how you will attempt to get out of your card debt by creating a list of all the credit cards that you currently own, ensuring that you make notes of the total debt including the Apr for each of them. The sum total of all these various debts will give you your total credit card debt.

You also need to check if you have been defaulting on payments on any of these credit cards which normally result in a "late fee" being charged and added to your account.
The next important step in getting out of debt is to check your current financial situation and make an assessment of what funds you got available to apply towards your debt repayment. Then look at the options open to you for eliminating your debt.

Seek the help of a credit card debt assistance company.
Take the time to research the new bankruptcy laws and know your rights, you will discover that there are several options open to you to in reducing or eliminating that high interest debt and get your finances under control again.

Try to go shopping without your card; should you stumble on something you want to buy, you will be forced to give it some serious evaluation in order to determine if you really need to buy the item in question. Time delay before purchase is good so that you can give it a second thought!

Ask your current credit card supplier for help in your card debt reduction i.e. by lowering the APR on your cards.

Take above mentioned facts and ideas serious if you want to get out of your credit card debt!

Boost Your Credit Score - Smart Borrowing Strategies

Credit reference agencies are responsible for fixing the credit score. A bad credit score may be attributed to various reasons like:

• Delaying or missing a payment.
• Debt defaults.
• Financial commitments not being effectively fulfilled.

Nowadays, loans are also provided to individuals having poor credit record. Initially the interest rates may seem higher, but as time passes, their credit score and financial credibility will get better if they adopt a proper financial plan with the repayment amounts being in affordable limits. But, be careful of not applying for loans which are incompatible with your financial capability.

The Internet is a good place for researching on bad credit loans. Find out about several lenders, their loan terms, processes and interest rates. Do not apply to several lenders in a short span of time as it may further damage our credit score. An independent loan broker can help you with this.

The various kinds of bad credit loans that are available these days are:

• Home loans.
• Auto loans.
• Credit cards.
• Personal loans.

Bad credit personal loans are of two types, secured and unsecured. Secured loans are provided to homeowners depending upon their debt load as well as credit score. Loan is provided on the house property. Unsecured loans are rather very risky on the lender's part. Hence, getting them is usually difficult. Nevertheless, specialized lenders called sub-prime lenders are available for helping with unsecured loans.

For people having a damaged rating and a desire for loans with low rate, a secured loan is a good option owing to its lower risk on the lender's part. These low rate loans can be applied once the credit rating gets better.

Bad credit loans provide us with the much needed finances required to fulfill our dreams, needs, leisure and desires.