Hey you. Yeah you, I got a deal for you. I’ll give you this $500 computer for nothing. Until 28 days from now, then you owe me a minimum of $50. By the time you’re done you’ll have parted with over twice what the computer is worth and you probably won’t even have it anymore. Sound good?
Not really. Sometimes credit is a good thing. Your ‘score’ helps you buy big ticket items like cars or houses. So carrying small balances isn’t a big deal; the problem comes when the small balance got out of control.
- Pay off the high interest rate first. Arrange your cards in the order of interest and put together a plan to settle your debts. When the first is done split that payment between saving and the next highest.
- In too deep? Avoid credit counseling. It’s better to call the company itself and see if they will work out payment arrangements with you. Credit counselors tend to work for the card companies anyway. They are not working for you and they charge you for their help.
- Way too deep? Bankruptcy. A lot of people will try to extend credit after a bankruptcy. This is because they know the debtor can’t declare it again for a certain period of time. Debt is what you declared bankruptcy to avoid. Don’t fall for it. In addition, do not pay any of the accounts you plan to put into the bankruptcy – even one payment is an acknowledgement of debt.
- Use credit to your advantage. If you can afford to pay off an account that has zero percent financing for a year (18 months, whatever). Make a plan and pay it off. You’ll save on the interest and you get your furniture now. Always pay if off. If you don’t you’ll owe all the interest when that period is up.
- Assess your creditors. Hospitals don’t like this, but there is no minimum payment for your healthcare bills. Send them a payment every month and if they take it – you have an interest free loan. Credit reports shouldn’t say you’re late on your payment because there was no set payment schedule. It’s not a perfect world, and it still may show up on your credit report – if it does, explain why you made payments and that you’ve kept it up until the debt was cancelled. You have to pay something – any dead beat balances will hurt you.
I went a little long on credit – but there is a lot more to cover here. Try to take a course on financial planning if you can. Our bank (well it’s really a credit union–Community America) offers one for $89, not a bad investment. Like a budget, credit should work for you. It’s a tool. Don’t let it destroy your life.
Cheryl Richter is a Christian that happens to be a CPA. She has over 15 years of experience in the Audit profession. She has written for the Kansas City Star, Faith section. You can contact Cheryl via e-mail at email@example.com.