Money Management Tips for the Newly UnemployedThursday, August 13, 2009
ATLANTA, GA -- Credit cards are almost a necessity in today's technology driven world. You can't reserve a hotel or rental car or make an online purchase without one. And while the irresponsible use of credit cards can wreak havoc, when used properly, they can help ensure your financial stability and make you a candidate for better terms on automobile loans, home mortgages, and more.
"A solid credit score is a valuable asset, and protecting or increasing that score, especially in these challenging economic times, should be a priority for consumers," said Suzanne Boas, president of Consumer Credit Counseling Service (CCCS) of Greater Atlanta. CCCS offers tips to help consumers get the most from their credit cards:
Snowball your debt - Instead of spreading extra money around to all of your debts, focus on paying more on just one card while maintaining minimum payments on the others. Start with either the card with the lowest balance or the highest interest rate. Once paid, move to the next card. Start with your unsecured debts, such as credit cards and medical bills and then focus on secured debts such as your car loan or mortgage.
Allow your creditor to raise your limit, even when you are paying down your cards--Ideally, consumers should use only 20-30 percent of their available credit, so increasing your limit will improve your debt to available credit ratio. If you have $10,000 in available credit, using no more than $2,000 to $3,000 of that is ideal. If you have maxed out your credit cards and are concerned that an increased limit would lead to increased spending, do not allow your limit to be raised.
Choose major credit cards over small retail cards--While that 20 percent off today's purchase might be enticing, higher interest rates and less favorable terms might negate any savings. Many major card issuers have reward programs that might meet your needs while offering cards with little or no fees and lower rates.
Use distraction techniques--If you are an impulse shopper, putting your cards "on ice" will give you time to reflect on your personal financial goals before making a purchase that can send you off course. Some consumers freeze their cards in blocks of ice; others might store cards in a hard to reach place, such as a safe deposit box at a local bank.
Pay off your debt--don't just move it around - Zero interest introductory offers entice many consumers to shuffle their debt from one card to another. In many cases, these short term offers are followed by long term effects, such as transfer fees, higher interest rates and shorter payment times that might cost you much more in the long run.
Pay off your collection accounts--Collection accounts stay on your credit report for up to 7 years from the date of last activity. If the account is still unpaid, it could stay on your report longer. Paying off your debts, even when they are old, will go a long way in convincing prospective lenders that you are a good candidate for credit in the future.
Things to avoid:
Closing an account when you pay off a card--Closing an available credit line decreases your available credit and can have a negative effect on your credit score.
Closing the first account you ever opened because it is still showing on your credit report--The length of time you have had credit represents about fifteen percent of your overall credit score. When you close out that account you first had in college, you reduce the length of time you have had credit.
Not addressing Identity Theft-- Even if someone using your social security number is not impacting your credit report negatively, it is still identity theft and it is still fraud.
Allowing someone to be an authorized user on your card rather than be joint on the account--An authorized user has the same rights as you do to use the card, but has no responsibility to pay the bill. By authorizing someone to make purchases, you are agreeing to cover their charges.
Moving unsecured debt and making it secured--Think twice before using a home equity line of credit to pay off credit cards and consolidate your debt. Credit cards are unsecured debt and failure to pay will have a negative impact on your credit score. A home equity line of credit is a secured debt and failure to make payments can result in losing your home.