Credit cards offer an easy and convenient way to buy the things you need.
For many, using credit may be too easy. Take precautions when using credit during the holidays. Set limits on yourself. Don't think of credit as "cash." Think of it as a loan, which it is, that usually carries a high interest rate.
The average household has five credit cards, owes almost $2,600 in credit card debt and pays as much as $1,000 in interest and fees per year. Many households also have loans from banks or finance companies.
Used wisely, credit is a valuable tool to help you reach important goals. If you don't pay attention, credit payments can quickly eat up a large part of your monthly income. Paying for routine expenses and making minimum payments may become difficult. Without action, the situation only gets worse.
Making only minimum payments does little to reduce your balance. Take, for example, a credit card with an 18 percent annual percentage rate and a $1,000 balance. Pay only $20, the minimum payment, and you will need seven years and two months to pay off the balance and an extra $860 in interest. Paying $50 per month will knock off more than five years and $650 in interest.
Getting out of debt makes you more financially secure and helps you to focus more on your financial future. Getting out of debt creates flexibility in case of financial setbacks or opportunities. Reducing debt can help you qualify for a home mortgage. Paying off your debts is a wise investment that will pay off for years to come.
The first step toward getting out of debt is to stop using credit. Do not take on new debts or charge any items that you cannot pay off in that month. Paying off debts is hard enough without constantly adding to what you already owe.
Leave your credit cards at home. Better yet, cut them up. If you must keep one credit card for emergencies or job-related expenses, use it only for that reason.
The next step is to decide if you can get out of debt on your own. If you cannot easily afford minimum payments each month, or have fallen behind on your payments, you may need help. A variety of non-profit counseling agencies are available to help you develop a repayment plan.
You can develop your own repayment plan. Ask each of your credit card providers for better terms. Your provider may be willing to reduce the interest rate on your credit card.
Many credit cards offer a very low, introductory rate for a specific number of months. Read the fine print before transferring a credit card balance. Make sure the rate following the introductory period is lower than what you currently pay, especially if you won't be able to pay off the debt during the introductory period.
Look for any transfer fees or special, higher rates for transfers and rate hikes for late payments.
Use credit wisely, if at all during the holidays. For more information on getting out of debt, give me a call at 595-1815.