Hi, thanks for joining us today. Today we're going to be talking to all about credit cards.
Everything you need to know.
Let's start off with some statistics nerd wallet conducted a study in 2017 regarding
credit card debt. What they found was that Americans total credit card debt
continued to climb reaching an estimated $931 billion now that's a nearly
7% increase from the previous year, and the average household their carrying a
balance of at least $15,000. Let's first take a step back and discuss what is a credit card?
Well a credit card is issued by a financial company gives you the holder
the option to borrow funds at some point of sale in exchange for doing for paying
cash. Now credit cards they charge an interest and are primarily used for
short-term financing, it's important to understand a credit card is different
from a charge card. A charge card requires the balance be paid in full
every month for example American Express offers a charge card every month you get
your bill you must pay it off in its entirety.
Credit cards you're carrying the balance and paying on the debt.
So what are the advantages?
Well first of all one advantage that you can buy things that you need now it reduces your
need to carry cash, it creates a record of your purchases, it's more convenient
than writing checks, and it does consolidate your bills into one payment,
but the disadvantages are you pay interest which is a higher cost for the
good you buy, it may require additional fees, and you could have financial
difficulties if you lose track of how much you've spent and you can't afford
to pay the bill down the road. It also allows you to do impulse buying which is
something you should always seek to control.
So before you sign up for a card
there's some things you should know, first of all just like any loan shop for
the best rates, bankrate.com is a great resource for
finding good available deals, second read and understand the contract yeah it's a
lot of fine print but you may save yourself some trouble later don't rush
into signing anything and once you do sign make a copy of it, even if it's
online print it out, keep a copy. Also figure out the total price when paying with credit.
How much will it cost you overtime?
Make the largest monthly payments possible every time. Of course when you get credit
cards you should compare them, compare them to the ones you have compare the
ones you don't have, know the penalties for missed payments, how much is the
annual percentage rate? Interest rates can vary greatly between cards.
One issuer could give you a rate of 5.99% percent while another one could
offer you a 21% percent rate, some will have a teaser rate to start with and it will go up higher later.
Know the rates ahead of time before you apply.
Second annual fees some cards have no annual fee while some have fees of $75
or more. Transaction fees, if you do a balance transfer will cost you any money?
Finally grace periods, how many days after the due date do you have to pay
your debt before your accessed a late fee? Most cards no longer have a grace period
It's important to check into this though. The features that your credit card
offers are also very important. For instance, what is the credit limit that the card offers you?
How widely is the card accepted will it be taken at all
the stores that you shop at that generally?
Think about the advantages of a major
credit card versus a stor credit card. Sometimes it is in your best interest
to have a store credit card while limited you offer great advantages for the
things that you like to buy and need most often, and finally what services are
available? A lot of credit cards offer ancillary services don't fail to check
those out and see what benefits you're getting. So the question naturally arises
how do lenders choose whom to give credit to? How do they decide one person
from the next? Well primarily they use what's called the three C's character,
capacity, and capital. Character, will you repay the debt, have you used credit
before, do you pay your bills on time do you have the good credit report, can you
provide character references from your credit history, does it look like you
possessed honesty and reliability, how long have you lived at your present
address, those are among some of the questions that I want to answer.
Second is capacity, can you repay the debt, how long have you been at your
present job, how much money do you make, what is your salary
what other loan payments do you have, what are your living expenses,
what other debts do you have, how many dependents you have in other words what
is your ability to pay after we remove all your other expenses and after we add
up all your income. Then finally capital what if you can't repay the debt,
what do you own, what do you have in your possession that you can sell that would
help you repay the debt, even if it's not a secured debt do you have a savings
account, do you have investments use as collateral. Having capital is an
important thing it's an asset that underlies your ability to pay back debts.
You want to build your credit history, how do you do that? First of all
establish a steady work record pay your bills promptly, opening a checking
account and not bouncing checks is quite important, opening a savings account make
regular deposits, apply for local store credit cards you make regular monthly
payments, maybe apply for a small loan use your savings account as collateral.
If you don't have good credit and you need help you can also get a cosigner on
a loan and pay back the loan as agreed. At least it will show that you have a
positive history. The trouble is sometimes you do need to get a credit
card to start building good history but you can't get one and then you should
look into a secured card. Secured cards a little bit different from a regular
credit card in that you're going to be required to put a deposit at a bank or
financial institution and they will hold that money in an account in case you
can't pay your bill that's the security the collateral against your amount that
you owe. Now one of the good things about a credit card that's secured is that
it'll help you get a card that's not secured, it'll also give you the ability
when you do have to travel you need a credit card to use that in emergencies
when you can't access your bank accounts instantly. The drawbacks well there are some
drawbacks first of all you do have to pay back the money that you borrow,
second the money you're putting into the deposit into security that money is
going to be held for a while so you won't have that money available, and if
you do need to take that money out for something you're gonna have to put that
back otherwise you won't have the capital to secure the credit card.
Is it worth the drawback? Sure it is especially if you need to rebuild your credit but
again as an all decisions using credit you have to do it wisely. So how much
credit can you afford? Well it's an interesting question because it depends
on how much you spend on everything else generally speaking though 15% of your
net income is all that should go to be paying your personal debt because you
have to leave room for food generally expected to be roughly 20% housing 25%
personal debt as I said 15 and then mixed on all the other expenses you
generally find it's gonna have to be squeezed in there because personal debt
can't outweigh your other more important requirements for life food, housing,
clothes, and so forth. It's important to stress that you never borrow more than 15% of your
net yearly income. Let's take an example of
that so if you earn 2,000 a month after taxes then your yearly
net income is $24,000 a year that's 12 times 2,000, calculate 15% of your
annual net income to find that you're safe debt load 15% of 24,000 comes to
3,600 so you should never have more than 3,600 and debt outstanding again housing
debt is not part of that 15 and monthly payments on your credit card debt should
never exceed more than 10% of your monthly net income.
So if your net take-home pay is $2,000 a month it's easy to understand that you
should never have debt payments in a month for your personal debt of more
of more than $200 per month again that would be 10% of your monthly
net income. So what are the important credit card do's and don'ts first of all
know your payment due dates know when your bill is due,
check your statements every month if you're receiving them paperless online make
sure you're reading those emails and then going to the website and looking at them.
Always try to pay more than the minimum amount if you're only paying the
minimum amount it could take a really long time to pay those cards back.
Know when you need to pay, Know when you need to use the credit interest free know when to
call your creditors to negotiate a lower APR sometimes that's possible to do all
you have to do is ask, also only get credit cards when you have a strategic
need for them just don't get cards just so you can have them in your wallet.
Keep your accounts open and a good standing always use the one with the lowest
interest rate first, keep your payments as I said around 10 percent of your
income and use your credit card reward program to your advantage don't use it
just to generate points but use it only when it pays you off better.
Take advantage of extras and understand if you're gonna cosign for anybody else or
someone's gonna cosign for you remember that you're now their business partner.
You want to make sure that you respect that other person that they respect you.
Don't run your balances up to the limit that's the worst thing you can do.
It hurts your credit score and at the same time it leaves you unavailable to use the
credit when you really really need it. Don't use reward credit cards when you
can't pay the balance off quickly just because you're getting a reward doesn't
mean that you should spend money you don't have,
never use a credit as a substitute for your income if you don't have income
coming in, get income don't use your credit cards. If you miss a payment by
more than 30 days call your creditor if you're going to miss the payment call
your creditor and avoid cash advances cash advantage usually carry a much
higher interest rate than your regular purchases and don't apply for too many
cards in a 6-month period because that will go against your credit.
Also if you have any old accounts out there don't just close them you may want to use them
or just leave them out there but closing them you don't want to do that and don't
let them close to inactivity try and use them occasionally just to keep them out there.
They will help your credit but don't run up credit when you don't need it.
Finally if you can help it never carry a balance for a month to month the
best borrowers are the ones who pay their loans off every month and start
anew never take on more credit that you can afford and again if you run into
trouble don't hide from your creditors they're the first one you should call
when you have trouble. Every month now you're going to be also getting a credit
card statement just like you get from other accounts that you have and in
there you're gonna find a lot of important information aside from your
name and address and the name of the credit card company are things like the
annual percentage rate your paying, check to make sure that hasn't changed
Make sure you're following your due dates make sure those don't change
they'll tell you what your new balance is what your old balance was how much
you're paying in finance charges and again the due date that's a really
important date on the back of your statement you'll generally find what the
fees are for lost stolen cards, cash advances, other fees, make sure you're
aware of what they are it's important to know your statement really well again I
advise getting your statement online and getting a printed copy doesn't hurt to
have an extra copy for now. The Fair Credit Reporting Act that protects your
privacy any accuracy of information about you that's held by credit bureaus
under this act credit reporting agencies they're not allowed to report any
information that's too old incomplete or wrong and positive and neutral
information can be reported indefinitely negative information can only report it
for a specific period of time bankruptcies are from ten years, civil
suits can be on there for no longer than seven years and again seven years for
unpaid liens and other things it's important to know the law and to look
into it if you have any questions but understand that negative information
cannot be reported about you indefinitely there's a time limit on
them. Equal Opportunity Act of 1974 that's an important one it protects you
from being discriminated on on the basis of your sex, your race, your color, your
religion, national origin, marital status age, or receipt a public assisstance it
applies to any business that grants credit it's important to make sure that
no one is depriving you of opportunities that you have coming to you.
Fair Credit Billing Act, this one made sure that there's a procedure for the quick
correction of mistakes okay so we all make mistakes
credit card companies too, this gives you the ability to refute charges you didn't
make and to make sure that everything is on your bill is there in proper.
The Fair Debt Collection Practices Act well, this prevents abuse by professional
debt collectors and applies to anyone employed to collect debts owed to others
they can't call you it inconvenient times such as before 8 o'clock or after
8:00 9:00 p.m. they can't call you at work if they know that your employer
does not want you to be called there and they can't contact you by a postcard or
use an envelope that makes it clear that a debt collector sent it have some other
ones in there too it's important to understand these and to make sure that
no one is depriving you of your rights. So just to recap, it's important to
remember your credit responsibilities, always avoid buying on impulse,
borrow only what you can repay, read and understand the credit contract that you
signed, pay up debts promptly don't wait until the end of the month don't wait to
pay next month pay what you can now, notify your creditor if you cannot meet
payments. It's important to stay in contact with your creditors they'll work
with you only so long as you're willing to work with them. Also report lost or
stolen cards promptly, if you see any activity on your account statement that
doesn't look like it's something you did contact your credit card company
promptly, they may be fraud going on it's important to keep track of this
especially nowadays, and finally never give your credit card number over the
phone unless you initiated the call or you are absolutely certain of the callers
identity. It's important to protect yourself at all times,
it's your money make sure that you're spending it wisely and protecting it wisely.
Finally thank you very much for joining us today!
If you have any further questions you can always reach us at 800 435 2261
or by email at fined@consolidatedcredit.org
Remember we're Consolidated Credit when debt is the problem, we are the solution.
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