gk YOUR MONEY, YOUR FUTURE
Credit Card Debt: Your Worst Enemy!
Almost everyone
tends to worry that
the money we earn
is leaving our bank
accounts must faster
than it enters. For a
large number of us,
this is absolutely true. Having to pay a
large number of bills each month can
become a psychological nightmare. If
you fall behind on bills, the phone calls
and letters begin to arrive and thus your
level of stress and aggravation increases.
The benefits of paying off debt are
many. The very instant you start paying
down debts, your finance charges drop,
and you get a risk-free return when you
pay off the debt. Take as an example-
most lenders charge 17%-21% on unpaid
credit card balances while today’s saving
accounts earn 3% to 4°7o. The 15% dif
ference between 19% credit card debt,
and the 4% savings account or money
market fund is your return.
How much debt is too much? As rule
of thumb, you are in trouble if you spend
more than 20% of after-tax (net pay) in
come on non-mortgage credit. Credit
card debt, and other revolving loan ac
counts are the largest culprits. Break free
of this credit card habit by changing your
habit by changing your attitude and
perspective. Each month pay off all new
charges on your cards, plus interest and
a portion of the previous balance. Avoid
paying the monthly minimum, always
pay more. The monthly minimum pay
ment insures that you will pay the most
in the long-run.
Consider this example: if you owe
$1000 on a credit card which charges a
typical 19.8% finance charge and only
makes the minimum (3% of the balance,
rounded to the nearest dollar or $15,
whichever is greater) on the card each
month, and never use the card again for
charge purposes, it will take nearly 8 and
a half years (101 months = 8.42 yrs.) to
pay off the debt. In addition, the total
interest paid to retire that initial $1000
debt is $1874.10, thus meaning $874.10
in finance charges.
Reduce the number of credit cards you
have by cancelling or store them in a
safe, but inaccessible place, especially
those with high interest rates. If you lack
money to pay the balances off on the
cancelled card, you might borrow from
a low-rate credit card to pay off the
balance on a higher-rate one. First,
however, be CERTAIN that the interest
rate on the cash advance isn’t higher than
what you’re already paying on your
credit card purchases. Also, if you use
this strategy, be sure to destroy and
CANCEL the paid off credit card. If
not, you run the risk of using that card
again thus causing greater problems.
Know when your credit card statement
closing date occurs, it is usually on the
bill. If you make a purchase after the bill
closing date, you will normally receive
40-45 days before the next bill is due,
thus giving you time to earn the money
to pay the monthly bill in full.
Do you really need 4 Visas or Master-
Cards, each with a credit limit of $2000?
This is an invitation to disaster. Most in
dividuals need no more than 1, maybe
2 credit cards with credit line limits rang
ing from $300-$700. Remember, the new
strategy is to pay off in full each month.
You don’t need a credit line limit which
will allow you to run up large debts. Call
the company and ask them to REDUCE
your credit line limit.
Last but not least, always pay your bill
on time. Your credit rating is at stake and
credit card companies are quick to report
you as a “late payer”. If you have have
financial problems, contact the credit
card company in writing and via the
phone and explain your financial dif
ficulties, and work out a reduced pay
ment plan. This is much better than
simply ignoring their phone calls and
letters.
Next month, we will review budgeting
and how a good budget is your first step
in building a successful financial future.
If there is a topic you would like to see
addressed or questions for me, send to:
C/O: Jeffrey Allen
YOUR MONEY, YOUR FUTURE
Allen Consulting Group
A Financial Advisory Company
6944 Shadow Ridge Lane
Stone Mountain, Georgia 30087
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