Credit cards offers are difficult to stand up to. It would be intense for the vast majority to leave behind an offer for a 56 inch plasma TV worth $2500 for just $50 a month on a credit cards. Despite the fact that numerous people can bear the cost of a $50 regularly scheduled installment, they may not understand that they will wind up paying more in enthusiasm than for the first cost of the TV.
# The Cost of Paying Only the Minimum Due
It is a common mistake to let yourself get used to paying only the minimum amount that is due on your credit card bill. A small monthly payment may seem insignificant. However, the payment may not look so insignificant when you understand the true cost of credit cards and interest.
Let’s say that you really did go out and buy a new plasma television for $2,500. You used a credit card that had an annual percentage rate (APR) of 18 percent. Your minimum monthly payment may be as low as $50 like in the example mentioned above, but in order to calculate your total long-term costs, you will need to know how your minimum payment was determined.
# How Minimum Payments Are Calculated
A minimal payment is typically determined by using a percentage of your entire balance. The percentage amount is usually about 2 percent but can vary depending on the card. Keep in mind that the minimum payment goes towards the interest charge and to the original amount that you owed. In this case, the original amount was $2,500.
For the $2,500 plasma television, 2 percent of your original debt would be $50.
With an APR of 18 percent, your payment would cover $38 in interest and $13 towards your $2500 liability. After the first payment, you would still owe $2487. The basic formula is:
- Divide 18 percent by 360 days of the year which equals .05 percent.
- Multiply .05 percent times 30 calendar days which is 1.5.
- Finally, multiply 1.5 by the $2500 original balance which equals $37.50 ($38 rounded) in interest.
# The True Cost of That Purchase
If you paid only 2 percent of your total balance due every month, it would take 334 months to pay off your debt. In other words, it would require 28 years to pay off a $2,500 liability. The television will probably have stopped working long before you have paid it off.
Even if you decided to pay for 28 years, you would also have paid $5897 in interest. Your true cost for the 56 inch plasma television would end up being $8397.
# Letting Interest Work For You
However, image what you might have earned if you had put the $50 into a savings account for 28 years. Even at today’s current low rates it would have been a substantial amount.
For instance, let’s say you started a savings account or opened a CD with a 5 percent rate and deposited $50 every month for 28 years. Also, let’s include what you would have paid in taxes with a tax rate of 25% on the income that generated.
Your total savings would have been $29,648. You would have earned $17,130 in interest income. Your total tax cost would have been $4,283. After taxes, you would have made an extra $12,847. You could have paid for the television in cash and had plenty of money left over.
# Don’t Fall Into the Credit Card Trap
A lot of individuals get tempted by the credit advertisements and deals that are too good to be true. However, when you look at the long-term consequences, the low monthly payment offers will usually cost you a lot more money.
It is a good idea to learn about how much a credit card transaction would really cost before going through with the purchase. You can check for yourself here at with these credit and debt management calculators. Check out the “minimal payment credit card calculator,” which can tell you:
# Your total cost with minimum payments
How many payments it will take to pay off the entire balance with minimum payments
How different rates will affect the total costs
Credit companies usually make huge profits by offering teaser rates and low minimum payments. It is one way of maintaining their income by keeping consumers in debt for 10, 20 or even 30 years. Instead of adding to their income, you might consider building a savings account by depositing what you would have spent on your minimal monthly credit card payments.
Credit cards can play an important role in our lives. They can provide emergency funds for a major car accident or another critical situation and allow you to recover quickly in a time of need. If you have to use credit, pay your bill in full each month. If you have to rely on making smaller payments try to pay at least $10 over the minimum payment and only charge items that you can truly afford. This can save you thousands of dollars in interest charges.
Growing great credit is a progressing procedure that begins with seeing how credit reporting works. While paying your bills is a crucial stride in the right course, there are other littler, lesser-known strides that are critical to setting up and keeping a perfect credit report and a decent financial assessment. Applying these means will go far in giving you the financial record you merit.
# Check your credit report for accuracy
Check your credit report regularly to ensure that the data included is accurate. While you want to look out for obvious errors, such as accounts that may have been opened as the result of identity theft, there are other smaller errors that may exist that can harm your credit. In addition, look at your name on the report to ensure that it’s accurate. Something as obvious as changing your last name from your maiden name to your married name could make a large difference in your ability to obtain credit, as your married name and maiden name may not be linked within your credit history.
# Establish credit history
Make sure that you actually have a credit history. Without any sort of credit history to go on, lenders have a difficult time evaluating whether or not you are a risk. Keep in mind that each individual has their own credit file and report, so spouses will each need credit cards and/or loans in their own name. If you don’t like the idea of having credit cards or loans, consider a secured credit card or a credit card with a low limit that you pay off every month, establishing that you are a reliable and trustworthy consumer.
# Stay loyal to creditors
Being loyal to your creditors is the next step. Creditors like to see a strong history so keeping cards open for a long period of time is beneficial to your credit score. While the first credit card you opened may not have terms as appealing as some newer cards, consider contacting your existing lender for better options rather than canceling.
# Find a balance
Make sure that you don’t have too much open credit. Lenders often look at your credit lines as potential liabilities, and this can hurt you. On the other hand, using a high percentage of your available credit can also be detrimental to your credit score. It’s essential that you develop a good balance.
# Pay bills on time
Pay your bills on time. When payments are delinquent, creditors report this information to the credit agencies, and it can harm your credit score. Timely payments of the minimum required payment or more shows creditors that you have a history of paying your bills on time.
After you have measured the advantages and disadvantages of a home-based business and chose that independent work is ideal for you, your next stride is to build up an arrangement. Your marketable strategy ought to characterize your business and distinguish objectives. At the point when building up your arrangement, research laws that may affect your business. First off, you should see whether you require a permit or allow to work your business. A decent marketable strategy likewise incorporates budgetary data, for example, an asset report and pay proclamation.
When working on your business’ financial plan, don’t forget to develop a method for managing your new personal financial situation. Unfortunately, statistics show that many home-based businesses fail often due to poor financial planning. Following are some ideas to help make self-employment work for you.
# Keep tabs on your taxes. Some self-employed individuals may have to pay up to a 15 percent self-employment tax in addition to their regular income taxes. To avoid tax-time surprises, periodically review your taxes throughout the year. Don’t forget to make necessary quarterly tax payments to avoid under-withholding penalties.
# Don’t underestimate your expenses. Fortunately, more than 40 percent of all home-based businesses require less than $5,000 for startup. However, there are many other costs associated with running a business. In your spending plan, don’t forget expenses such as childcare, insurance, postage, gas, and dry cleaning.
# Manage your income. Most self-employed workers have sporadic incomes. If your income varies from month-to-month, determine your average monthly income. Then, if you have a month where you earn more than average, put the extra amount into a savings fund to supplement less lucrative months.
# Avoid relying on credit cards. Borrowing from a credit card can quickly lead to costly trouble. If you need to use a credit card for business expenses, open an account specifically for that purpose. If you need money to launch your business, consider a small business loan instead.
# Keep accurate records. Complete all of your paperwork on-time, particularly if you are billing clients or customers. Many companies will take several weeks to process invoices. Keep copies of all receipts for tax time. Because networking is so important, keep business cards and contact information in an organized manner.
# Get help. Consider working with a lawyer who can help you with necessary, and sometimes complex, legal matters. You should also contact your insurance agent to make sure you have appropriate coverage.
If you are frustrated by the sometimes lengthy family budgeting process and are longing for a quick fix that will save you money almost instantly, start in the grocery store. Your food bill is probably one of the largest budget-breakers. On average, U.S. consumers spend more than 13 percent of their income on food. Fortunately, your food bill is one of the most easily manipulated, and saving money is virtually effortless.
First of all, everyone’s heard that you should not shop when you’re hungry, and that’s a good idea. Here are other smart shopping ideas to consider:
# Always shop with a list. On average, impulse buying accounts for 20 to 50 percent of a total grocery bill. Instead of wandering aimlessly through the aisles, bring a shopping list and a pen with you.
# Grocery stores are for groceries. Books, batteries, light bulbs, and pet supplies can all be found at the grocery store. Before you purchase everything you need from one store, make sure you aren’t paying too much.
# Shop alone. Marketers spend a lot of money convincing kids to buy their cereal for a reason. By reducing your distractions, you can make thoughtful purchase decisions.
# Carefully consider the cost of convenience. As a general rule, the more convenient the item, the more it will cost. Ask yourself if it is really worth paying more for shredded cheese when shredding it yourself would take mere minutes and save you some cash.
# Shop only once per week. Try to adjust your schedule and your purchases so that you are going to the grocery store once a week. This will help reduce impulse shopping and should be a big cost saver. If you must go more than once per week, stick to your list.
# Plan your route. To find the most natural and least expensive ingredients, such as dairy, bread, vegetables, and fruit, try skipping the center of the store and make a loop of the outermost aisles.
# Consider generics. Look for generic brands of items where it really doesn’t make a difference. For example, most dry goods have the same ingredients, regardless of the brand. The difference in price, however, can be as much as a 50 percent discount.
# Use coupons wisely. Only use coupons for items you are planning to buy anyway. Also, make sure you compare the price of a product with the discount on the coupon to the regular price of the brand you normally buy.
Financial setback unavoidably happen, and in the event that you end up managing a cutback, high therapeutic costs, or another difficulty, there are a few stages you ought to take to begin the street to recuperation.
# Survey your own circumstance
To begin with, evaluate the circumstance so you know precisely what you are managing. It is safe to say that this is a one-time misfortune, or a continuous issue? Is it impermanent or lasting? Know precisely how much cash you’ll need, and the amount you have.
# Analyze available financial resources
Determine what resources are available to you, both from your own accounts as well as insurance. If you are facing medical bills, have you made sure everything has been covered appropriately by insurance? If you’ve been laid off, look into Consolidated Omnibus Budget Reconciliation Act (COBRA) extended health insurance coverage, as well as unemployment insurance. Do you have an emergency fund? If so, this may be the right time to start using it.
# Create a personal financial plan
With your spouse, work through your budget and your bills, and decide how you are going to get everything paid. Is there opportunity to earn more or spend less? Know exactly how you’ll be spending your money over the next few months, and make a plan to track your progress.
# Set financial priorities
After you know exactly what your situation is and what resources you have available to you, you’ll need to set priorities. Go through your budget and determine if there is any opportunity to decrease costs, such as canceling or cutting back on cable.
Know which bills have to be paid immediately, and what things you can prioritize later. Just don’t be tempted to go without insurance – this can change a minor setback into a major one very quickly.
# Contact your creditors
Finally, if there are some bills you absolutely cannot afford to make minimum payments on, contact your creditors to work through payment options. You should make these phone calls before your bills end up in collections, because once there, your options are limited.
If you are finding that you have more expenses than income, there are only two ways to improve your personal financial situation. One way is to spend less money; the other is to earn more. After you’ve exhausted all options for spending less money, you’ll probably need to search for ways to earn more. Surprisingly, making more money isn’t too difficult when you set your mind to do so.
First, go through your personal budget carefully to determine how much money you will need. Do you need more money on a monthly basis, or for a one-time situation? Knowing this will help you decide which suggestions to consider.
Ideas for earning more money
# Secure a part-time job. Seek additional employment, even if it is not in your field of expertise. You may wish to consider working somewhere that will provide you with discounts to merchandise or services.
# Improve your skills. Research local nonprofit organizations and government agencies that offer training opportunities. Visit your local library and read about the latest trends in your field. Remember, the more you know, the more you’re worth.
# Network. Join a professional group and attend job fairs. Sometimes, getting that perfect job means knowing the right people to help you get your foot in the door.
# Sell yourself. Attend resume-building and employment workshops; many are offered free of charge.
# Utilize available resources. Check with your local Department of Labor Employment Services for job training and opportunities.
# Enlist help. Contact a local temporary employment agency. They offer a variety of temp work and flexible schedules. Many positions have the potential to become permanent.
# Make the most of what you have. Ask your current employer about opportunities for overtime. Now might also be the time to ask for that well deserved pay increase.
Finally, consider all of your opportunities for one-time income such as holding a garage sale.
Young people learn by step by step going up against more duty. For some guardians, this includes giving their kids a restricted measure of control over budgetary choices. On the off chance that you give your high schooler a stipend, take an ideal opportunity to show them how to deal with their cash and control their spending. All things considered, most teenagers report finding out about cash administration from guardians. Set up a concurrence on what the recompense covers. Consider giving additional pay chances to help them discover that cash is something you win, not something you are qualified for. This is likewise an extraordinary approach to get them required in additional family errands.
Another effective tool is to get teens involved in a major purchase, such as the car buying process, whether the car is for them or for the whole family. Discuss with them such issues as what the car can be used for, who is responsible for gas and maintenance, and who can actually drive the car. Show them how auto insurance works, including how much the premiums increase when they start driving, as well as how much it rises if they have an accident or traffic violation.
Involve teens with your day-to-day personal finance decisions, such as grocery shopping. Have them help you with the grocery list and show them how to comparison shop, by pointing out how much money you save through comparing prices and using coupons. You can even ask your child to help cut out coupons, go through the sale papers, and develop the grocery list for the week. In addition, let them sit with you while you pay the bills, so they can see how much monthly obligations like utilities, phone bills, the mortgage, and insurance, add up.
Encourage teens to save their money for a major purchase and even offer to match their savings with an additional 50 cents per dollar saved. This is a great way to teach them the relationship between building a savings account and the positive rewards that follow.
Finally, teach teens how credit works and how to use credit cards responsibly. You might even consider showing them your bills when you pay them. Too often, young adults who get their first credit card perceive it as “free money,” and find themselves in debt very quickly. Don’t wait until your child is in college and inundated with offers for free stuff in exchange for opening a credit card. Help them understand that the $50 they charge today costs a lot more if they don’t pay it off quickly.
It’s verging on difficult to open your email or surf online without unearthing advertisements to “repair your credit” or “alter your credit.” Companies that vow moment and surprising upgrades shockingly can’t convey on their grandiose guarantees.
Nowadays, with credit at a premium, families are all of a sudden finding that they might be rejected for charge cards, advances, and contracts, and the allurement to pay for administrations to “settle” the issue on their credit report can absolutely be luring. While there are steps that buyers can assume to repair awful praise, these means oblige almost no cash, simply time. There’s generally no motivation to pay somebody to do these things for you, and nobody can or ought to guarantee to enhance your credit. The larger part of these credit repair organization offers cost noteworthy cash, and they frequently can’t convey on their fantastic guarantees.
Furthermore, these “credit repair” companies often recommend or use fraudulent and illegal methods to repairing credit. For example, some companies will send multiple credit disputes of negative (but accurate) records to the credit reporting agencies, claiming that information is incorrect, under the law that information must be verified as accurate within 30 days or should be removed from your record. This is illegal–accurate, negative information should not be disputed, and this information can be added back to your record once it’s verified as accurate.
Another fraudulent method is to recommend that you open a new social security number or employer identification number. This is also illegal and fraudulent and definitely does not work.
The FTC web site offers recommendations on how to recognize a credit repair scam. Beware companies that require money up front and recommend that you do not contact credit agencies yourself, among other things.
Keep in mind that any legal, ethical method to repairing credit can be done by you, without any fee. This includes sending a 100-word statement to the credit agencies, explaining your delinquencies, disputing any inaccurate information, and continuing to pay bills on time.
Filing bankruptcy is an extremely stressful process. If you have filed bankruptcy, I’m sure many factors brought you to your decision. You’ve received advice from your attorney and now you have the discharge papers from the courts. Do take a few minutes to review those papers, making sure all notices have been properly filed and received by creditors. Be sure to store those documents in a safe place. While you won’t get them out to reminisce about them, you may need to refer to them if there is ever a question about an account that was included in this filing.
Many clients tell us that once the bankruptcy is complete, they will never apply for credit again. However, in today’s financial world, that may not be not realistic. You might need a card to make purchases online, to make a reservation, or should you need to cover an unexpected expense. You might also need a car or home and finance it over time.
You’ve been managing without credit card while your case was working through the court system. So now, rebuilding credit is just another step that you are ready to start.
# Perform a credit checkup. Obtain copies of your free annual credit reports by visiting AnnualCreditReport.com. Review your reports for accuracy. Accounts included in your bankruptcy should show that they have been discharged.
# Reestablish your creditworthiness. When you are ready to begin reestablishing your credit, consider a securing credit card. A secured credit card is safe alternative to a traditional card. With a secured card, you deposit a specified amount of money in a financial institution which then issues you a bank credit card. The amount you deposit becomes your credit limit. With timely payments, you credit limit may increase and eventually the account may no longer need to be secured by your savings.
# Start saving. set yourself a goal of establishing an emergency savings fund. If the task seems daunting, start small by aiming to save two weeks’ worth of pay in your account.
With regards to boosting your FICO financial assessments there are an assortment of procedures that will yield differing measures of change. Numerous individuals trust that getting negative data expelled from your credit reports is the main approach to expand your scores. This is right however just if the customer is effective at getting most, if not all, of the negative data evacuated. Getting one of your twelve accumulations evacuated isn’t going to do anything for your scores.
A much more actionable (and realistic) way to increase your scores is to pay off debt. Not only is this a proven way to earn better scores but also it’s practically immediate. Paying down debt can result in a better score in less than 30 days, which is lightning fast in the slow moving credit-reporting environment.
But before you crack open your checkbook you’ll want to consider WHICH debt you’re going to eliminate. Why? Because when it comes to improving your credit scores not all “debt elimination” is created equal. In fact, paying some huge debts will yield little to no score improvement while paying smaller debts can result in a meaningful score boost.
Using a scoring tool built by FICO, I recently simulated the following “pay off” scenarios and measured their impact to a FICO score of 630, which is clearly one that you’d like to improve. Nothing other than the following actions changed on the credit report.
1) Paying off a $250,000 mortgage
2) Paying off a $35,000 auto loan
3) Paying off a $5,000 credit card
The results are as follows…
Paying off a mortgage loan of $250,000 improved FICO 630 to FICO 635
I’ve been telling people for many years that installment debt, even in large amounts, doesn’t have much of an impact to your scores. This is the quantification of that advice. And while this is just a simulation, in 2010 I sold a house and eliminated a $249,000 mortgage and my FICO scores went up four points.
Paying off an auto loan of $35,000 improved FICO 630 to FICO 635
An auto loan is an installment loan (like a mortgage) and the effect of paying it off is equally unimpressive from a scoring perspective. Don’t get me wrong; it’s nice not having a monthly car payment. And, it’ll save you big bucks not paying interest on a $35,000 loan any longer.
Paying off a credit card balance of $5,000 improved FICO 630 to FICO 665
Eliminating the credit card debt resulted in the largest improvement to the credit score, and really it wasn’t even a close race. Credit card debt is scientifically proven to be a riskier type of credit for lenders to extend, which means even smaller amounts like what was used in the simulation can have a significant impact to your FICO scores. It also means if you can pay it off your scores will improve a lot, and very quickly. And even if you can’t pay off your credit cards 100%, your scores will still improve by paying it down as much as possible.
# Why is my credit history important?
At some time in your life, your credit report becomes essential to obtaining mortgages, insurance, credit cards, car loans, and other credit, and may even be seen by your current employer or a potential employer. The best way to ensure that your credit report is accurate and positive is to check and monitor it regularly.
# What information is contained on my credit report?
All credit reports contain a variety of personal data about you; specifically, your name, last known address, birth date, Social Security number, and employment history. Though this information is included on your report, it is not used in determining your credit score.
The next section of your credit report contains all pertinent details regarding any loans that you have taken out in your name, for example: type of account, current balance, payment history including any delinquencies, loan term, and the date the account was opened. Bankruptcies, judgments, and foreclosures, if relevant, are also included on your credit report.
Another section of your credit report lists inquiries into your credit history. Potential creditors may view too many inquiries in a short period of time negatively.
# Who reports to the credit bureaus?
Any company that supplies you credit, from student loans and mortgages, to personal loans and credit cards, reports information about your loan to the three major credit agencies. That information can be included on your credit report. You may have slightly different information on each of the three credit agency reports.
# How often is a credit report updated?
Credit reports are updated as frequently as the supplied information changes. Most accurate negative information remains on your credit report for seven years.
# Where do I get copies of my credit reports?
The Fair and Accurate Credit Transactions Act (FACTA) gives every consumer the right to a free annual credit report from each of the three major credit bureaus: Equifax, Experian, and TransUnion. To get your free report, visit AnnualCreditReport.com or call 877.322.8228. You can request a free credit report from one agency at a time, or all three at once.