Charles Dickens’ character, Mr. Micawber, had an oft-quoted recipe for happiness:
“Annual income twenty pounds, annual expenditure nineteen pounds, nineteen shillings and six pence – result happiness. Annual income twenty pounds, annual expenditure twenty pounds and six pence – result misery.”
Assuming you understood the old currency of Dickensian times, the message is simple: Don’t spend more than you earn! Of course, Dickens never envisaged the creation of the credit card, which is as good a way as any to ensure that you do just that.
It’s true that credit cards are convenient, but it’s all too easy to quickly rack up debt and damage your credit score in the process.
Elite Financial Services, whose business is helping people to deal with their outstanding debts through a debt settlement program, suggest that you check out these eight “don’ts” before you think about obtaining or using a new card:
1. Don’t fall for marketing hype.
Does the credit card actually suit your spending habits? Is it accepted at the retailers you use? Does it have an annual fee? What’s the APR? These details are crucial before deciding on any specific card, note the experts at Elite Financial Services.
2. Don’t ignore the fine print.
If you do, you can find yourself in a whole heap of trouble later. The 2009 Credit Card Act – which outlawed certain credit card fees and required greater transparency – may not protect you from any or all of the credit card fees of the company you choose.
3. Don’t just pay the minimum payment.
Just because you can afford the minimum payment doesn’t mean you can afford all your credit card purchases. The APR on the unpaid balance is extremely high in many cases. And carrying a balance on a rewards credit card means even higher interest rates than regular credit cards.
4. Don’t take a cash advance.
Cash advances begin running up interest from the date of the transaction, and the rate can be higher than for regular purchases.
5. Don’t ignore statements and other mail.
Sometimes charges – which are technically legal – are added to your card without your knowledge or approval. Review your credit card statements regularly and try to resolve the matter with the retailer. Alternatively, you can just dispute the charges. Read all email and snail mail from your credit company just in case there are any changes.
6. Don’t max out your cards.
Using all your available credit can lower your credit score because credit card issuers consider you a higher risk. They may raise your interest rate, or they may try to reduce your available credit to limit in your spending.
7. Don’t miss your due payment date.
If you do you may get charged interest or damage your credit score.
8. Don’t chase points or miles.
Credit card rewards are addictive. They can cause some people to buy things they don’t need simply to get the rewards and spend even more than those with a regular card.
Jay Voci, of Elite Financial Services, says: “If kids coming out of high school knew how to handle and responsibly manage their credit, and if they understood how interest rates and principle balance rates worked, I think consumers would be a lot less likely to accumulate a lot of debt. The reason interest rates are so high is because people charge up all these things they can’t afford and when that goes into collections, other consumers end up paying more to make up for the people who did not make their payments on time.”
Of course, credit cards are not the sole source of debt problems. Almost everyone has made a financial decision they have come to regret at some time in their life. And they’re lucky if it’s only one! Actually, the Consumer Federation of America reports that 67 percent of the American middle class admits to having made a poor financial decision at least once, and 47 percent of those respondents made more than one bad decision.
We all know that mistakes happen, but the trick is to identify them swiftly and take appropriate action before a small error becomes bigger. The best thing to do is to consult a personal finance professional for advice specific to your situation, but meanwhile there are five common pitfalls you can avoid simply as a matter of course:
Live Within a Budget
To keep control of your spending, you need to make a budget. Set a budget and stick to it. This will make sure you have enough cash when you need it, and you won’t be left high and dry in your time of need. Start by accurately estimating your finances. Make sure to include all income and expenditure. Then set a realistic budget that you can stick to.
Credit Card Debt
You may be surprised to learn that America’s total credit card debt in May 2013 topped $847 billion, which can at least enable you to understand that you are not alone!
If you can pay off your outstanding credit card bills, you’ll break a vicious cycle of paying high interest rates on balances carried from month to month. You might consider the debt settlement options provided by companies such as Elite Financial Services. The fact is that no matter which course you choose, being free of credit card debt is a huge financial advantage.
Always Check Credit Reports
Don’t wait until you’re applying for a car loan or home mortgage before checking out your credit reports. Checking your credit report regularly will make you aware of possible problems before they arise.
It will also make you aware of any mistakes and alert you to any fraudulent activity, so you can deal with these issues promptly. The Fair Credit Reporting Act requires each of the three national credit report companies—TransUnion, Experian, and Equifax—to give you a free copy of your report every year, so make sure you request it.
Try to Save Money
Unexpected expenses, such as a major home repair or expensive dental work, can hit you when you least expect it. Regularly putting money aside for emergency expenses is the difference between managing a crisis relatively painlessly, or being forced to accumulate debt that will cost you even more money in the long run.
Pay Attention to Insurance Policies, Wills, and Retirement Plans
Make sure to get your financial, insurance, and legal paperwork in order; this can help save you time and money in the future. For example, when was the last time you rebalanced your 401(k)?
Check your investments to make sure you’re getting the highest possible return. Also check that your will is up to date. Prepare an annual review of these important financial documents; you’ll certainly gain peace of mind in the long run.
Remember to keep an eye on your budget; don’t stop saving, and never be afraid to ask for financial planning advice from your bank or other trusted financial institution.
Jay Voci, in a final observation, says: “Well, I’ve always thought about how important it was to educate people about their finances. What I figured out at an early age was that I did not want to fall into that severe debt trap. In the debt collection industry, I saw $10k of credit card debt being sold from banks to debt buyers. I made sure, because of my experiences at an early age, that I made every single one of my payments on time. A lot of my friends did not, though, because they just were not educated about debt and their finances. They would mail their payments the day before they’re due, rather than giving a minimum of two weeks for the payments to be applied. People aren’t aware of a lot of these simple facts.”
According to the experts at Elite Financial Services, all the above is information that everyone should be aware of when getting involved with a credit card or taking out loans. By keeping away from these common pitfalls, more individuals will be able to avoid falling into debt.