Debt! Debt! Debt!

I’ve read several articles and books on how much debt is acceptable.  Some state that debt should be no more than 5% of your income; others state you should not have debt at all.  There may be times when you feel you must go into debt in order to better your life such as a school loan.  Remember though…

The rich rule over the poor and the borrower is servant to the lender. 
Proverbs 22:7

If you owe a car loan to Bank of America, then you are a servant to Bank of America.  If you thought you really needed that treadmill and completed a loan through Sears because you didn’t have the cash, then you are a servant to Sears.   

Debt will play a part in decisions you make.  It can prevent you from spending time with your children because you are working extra hours.  It can cause stress and arguments with your spouse when you realize you can’t afford to pay a babysitter and go on a date BECAUSE you have that credit card payment to make. 

DEBT EXAMPLES:  car loans, credit card, second mortgage, school loan, loan from family, “no payments until 2009” furniture loans, car title loan, pawn shop loan

I challenge you to get out of debt.  If a store offers you no payments until 2010, RUN!  You may have to thrown a blanket over the old couch you were looking to replace but if you have no cash…do you really want to be a servant to Rooms To Go?
Thanks for listening!  Dana

p.s.  Mortgage loans are also considered debt but I’ll address smart ways of having that loan in a later post.


Credit Card Debt and College: My experience

I remember the first time I ever signed up for a credit card.  And yes it was in college.  I thought it would be so cool to get one.  I was totally oblivious to the terms of the credit card agreement.  I didn’t know how much interest I was charged nor did I understand how to calculate it.  All I knew is that I had a low monthly minimum payment. It didn’t change too much as the debt grew.

I also had a college friend that told me that I could simply go to the bank and take out cash.  I tested her idea and sure enough I was given $200 for a cash advance.  I was naive to what was happening. 

I called the credit card company to see if they would increase my the limit on my balance.  They did several times until finally I hit a plateau and could barely afford my monthly payments being a student.  Several times I was charged fees for going over that limit.  Plus my balance never seemed to go down because I couldn’t really afford larger payments.  So it was like a continuous cycle.  I would make the payment but then charge something.  Of course, at times I would go beyond the limit for my balance and get charged extra.  To me, I was in this crazy, never-ending cycle that felt like a monkey on your back. 

Yes, I did pay for one college class with my credit card. I think that it was on a separate credit card.  I was desparate to take the class.  To this day, I don’t even remember what the class was that I thought I had to charge hundreds of dollars.

This story is probably typical for what a lot of students have experienced.  Today, the credit cards that I had in college are completely closed out.  I remember calling the credit card companies and telling them that I wanted to close my accounts.  That is what I had to do at the time.  These old accounts were completely paid off.

My advice is ………

1) understand the terms of the credit card agreement. I as a college student had no clue what I had gotten myself entangled with.

2) know how to calculate interest. This is helpful for loans in general.

3) I know of some people who have credit cards and use them very wisely. They pay off the balance each month to avoid accruing debt. 

4) educate yourself on the traps of a credit card.  There is a reason why the credit card company only requires a low monthly minimum payment.  They are not interested in you paying off debt.  They are interested in keeping you in the debt cycle. I was also snared by the fact that the credit card company would honor my requests for a higher balance.  They wanted my debt to grow.


Ways to cut credit card DEBT!

CALL the credit card company directly!  I am not against third party interventions (consolidation companies or consumer credit counseling).  But before you go that route, try working with the credit card company yourself!  Many times by going through a third party, it can affect your credit score.  It’s not the company that helps you with consolidation or mediating an agreement, it’s the credit card company that reports to the credit bureaus that you had a third party intervention for your debt.

KEEP all your credit card solicitations from the mail for a few weeks! If you have debt on a high interest credit card and you receive an offer for a lower interest rate card from a different company, WAIT…don’t transfer your debt yet.  WAIT…don’t go and open another card account yet.  Call your current card and tell them you are looking at leaving their company because you have received an offer for a lower rate.  Many times your current card will match or at least drop their current rate for you.

BE honest with your credit card company!  Come on, don’t call your card and tell them the payment is in the mail, when it’s not.  God calls us to be honest and responsible for our debts.  If you or your spouse have lost their job or have an unexpected financial hardship, call your card and explain the situation.  Sometimes they may be willing to waive the late fee or lower your rate.  BUT talk to them in a respectful and nice manner.  It’s not their fault you are in this bind.

STOP viewing the credit card company as your enemy! You must take responsibility for your own actions of running up this debt.  Yes, the companies pursue people but you still have a choice in the matter.  I have experienced SEVERAL nice conversations with credit card companies over the years.  MOST of the time, they were willing to work with me.  Years ago, all but one of our cards dropped their interst rates for us.  In recent years, (we only have one personal credit card) I paid a bill late on-line and afterwards, when I called the company, they credited back the late fee since I was such a good customer of paying on time in the past.

CAN you handle a credit card? In today’s world, there are many occasions where a credit card is required or safer than using a debit card BUT if you do not budget nor manage your finances wisely, you should not have a credit card.  That may sound harsh but after experiencing credit card debt and taking 2 years to pay it off, I never want to be in that situation again…so we budget and stay strict with our ONE credit card.  When I did budget counseling with people, it broke my heart to see how many had worked so hard to pay off credit card debt only to run it back up again.  If a credit card will tempt you to buy something you can’t afford or to not live on a budget, then you should not have one. 

Lasting thoughts:

Pay your credit card off monthly.  Do not take cash advances on your credit card.  Do not charge something if you do not have the money in your bank account.  Pay your bill on time. 

Any other thoughts?  Please feel free to let us know!  Thanks and have a great week!  Dana

Credit Card Debt

My husband and I started our marriage off several years ago with 7 credit cards and $12,000 in credit card debt!  Several of the cards had a high interest rate of 14% to 21%.  Marriage is hard enough without the stress of debt so I went on a mission to cut this debt as fast as I could.  I had not heard of debt consolidation centers such as Consumer Credit Counseling so I started calling the credit card companies directly.  Out of the 7 credit cards, 5 of them lowered their rate for me and 1 gave me a 6 month 0% interest!  The last card company refused to lower my rate.  So after more phone calls, one of the lower rate cards offered to do a transfer balance from the high rate card.  Back then credit card companies did not charge a transaction fee for balance transfers but even if they had, it still would have been to my advantage to transfer from a 21% card to a 8% card.

Check back tomorrow and I’ll give you points on dealing with credit card companies directly rather than through third party companies.  DANA