Category Archives: Credit Card

How Many Credit Cards Should You Have?

How Many Credit Cards Should You Have?If you aren’t already using a credit card, maybe it’s time to apply for one. Many people use credit accounts to pay for a variety of living expenses, like fuel for the car and groceries. In fact, the average U.S. adult has about $3,600 in credit card debt, according to CreditCards.com. While some borrowers use credit responsibly, others get hooked on overspending and end up with a mountain of unpaid credit balances that can to bankruptcy.

With credit card offers frequently showing up in the mailbox or on the computer screen, it’s easy to take advantage of low-interest rates and no-fee balance transfers. Before you know it, you could end up with six or eight credit cards – or thirteen, like a hapless thirty-something shopaholic mom did recently. When reality hits, consumers who find themselves carrying a number of credit balances slam on the brakes and take desperate measures, such as cutting up their cards or bagging them in the freezer.

But a little common sense goes a long way. Don’t wait until you start getting monthly statements to realize you’ve overextended your credit by making uncontrolled purchases. With forethought and planning, you can put your credit accounts to good use without going into extreme debt.

  • Carefully compare credit card offers.

Don’t apply to the first ad to grab your attention when you happen to be short on cash. Compare two or more offers with respect to interest rate, payment amount (usually a percentage of the balance owed), and time constraints. For example, financial penalties for missing a payment or paying late include in some cases the possibility the lender will jump up the interest rate to a high percentage that means higher monthly payments. Some credit cards offer bonus points that can be redeemed for special gifts, while others pay a percentage of cash back to the borrower. Decide what is most important to you when choosing a creditor.

  • Leave your credit cards at home.

When out and about on routine errands, avoid using credit when possible, and stick to cash. Studies show that people who pay with credit tend to spend more than planned, often for non-essential purchases. Charging fewer expenses will help to maintain lower balances so that you are making smaller payments with possibly less interest.

  • Plan credit card use.

Review your monthly budget frequently to see where you are making unplanned purchases and spending more than you can afford. Set goals of using credit just for specific things, like fueling the car so you can pay at the pump. When doing discretionary shopping for holidays or special occasions, have an amount in mind that you want to spend to avoid buying pricy items.

  • Separate personal and professional charges.

If you use credit to make work-related purchases, be sure to keep receipts for reimbursement, if allowed. A company credit card may be available for frequent expenses, so ask if one is available. A personal credit card used for business expenses should be reserved for just those things, which makes it easier to claim deductions at tax time by checking monthly statements or charge slips.

Overall, you probably do not need more than two or three credit cards. One can be used for everyday purchases. Another should be set aside for business or other special spending categories. A third might be reserved for emergencies, such as a major, unexpected car repair. Try to get a low introductory interest rate with no balance transfer fee on all your credit cards, and no fee for balance transfers if you are switching to a new account to save money. Credit cards are valuable tools that build responsible financial management when used appropriately.

 

The Business Side of Credit vs Debit

The Business Side of Credit vs DebitThe choice you make at the checkouts while paying for goods you bought is a personal matter. You can process the transaction as debit, requiring your PIN to complete the process or you can run it as credit and sign for the receipt. This seemingly straightforward action has created an all-out battle between banks & retailers far away on Capitol Hill.

Banks claiming the interchange fees are necessary to cover the cost of transaction processing. On the flipside, merchants are claiming that they are losing profits due to banks’ interchange fees. Let’s take a closer look at what goes behind the scenes and how it affects the prices of everyday commodities.

Interchange fees: The cost of doing business

The card-issuing bank or credit union works out a deal with major credit card companies in case of offline transactions (otherwise known as ‘Credit’ transactions) that use one of the major credit card networks. This deal is all about using their processing service which is around 2%-3% of the total purchase price. This fee is paid by the merchant and is subsequently split into three ways; majority portion goes to the card-issuing bank, the rest goes to Credit Card Company and to the merchant’s bank proportionately.

Providers of online or ‘Debit’ transactions like Star, Interlink, Pulse, or NYCE also do an agreement with banks for the use of their Electronic Funds Transfer(EFT) network but here the interchange fee is significantly lower—1% of the total purchase price.

Now, of the two choices merchants always prefer the debit option because in that case, they keep a higher percentage of the total transactions. On the bank’s end, they are investing a good amount of money to steer consumers into choosing the ‘Credit’ processing method because of the swipe fees.

What the law says about it

In July 2010, Congress addressed this concern and initiated the Durbin Amendment regarding swipe fee reform. The amendment gave the Fed the authority to limit debit card processing fees. The central bank suggested capping fees at $0.12/transaction which is a 73% reduction from the current average. It seems like the Durbin Amendment allows the price of financial goods to go up as banks try to reclaim the loss of interchange fees.

If the swipe fee reform comes into the act as proposed, consumers will have to pay higher fees for checking accounts. Debit rewards cards & free checking account will soon become a thing of the past.

But if banks are the losers in this war, the opposite parties—merchants & their customers may be the winners. Merchants may start offering discounts based on the credit card you use. Besides, you may enjoy a 3% discount on your purchase if you are paying with cash.

In the end, we are yet to know how swipe reform will affect the card transactions. But the good thing is the price hike of goods & services due to hidden fees has come into the light. It’s up to the lawmakers now to decide if banking continues to benefit or if merchants along with their consumers can regain their breath from hidden interchange fees.

6 Quick and Easy Credit Fixes

6 Quick and Easy Credit FixesIt has never been easier to get a credit card, and most are widely accepted wherever people shop. However, it is just as easy to max out a card, and end up owing creditors a ton of money. Making slow or no payments can put a dent in your credit score. When that happens, you may run out of options for buying a new refrigerator when the old one finally gives out. If your credit history stands in the way of building a stellar financial reputation or making a major purchase, don’t worry. There are several steps you can take to raise your credit rating to an impressive level.

Review Your Credit History

Request a free copy of your credit report from each of the three major U.S. credit reporting agencies: Equifax, TransUnion, and Experian. Consumers are entitled to one free report per year, and it is important to request a copy and review it carefully for mistakes. Sometimes one or more of the reporting agencies include wrong information about your name, address, and credit accounts. Contact each organization that contains faulty information to make corrections. After a few weeks, request an updated copy of your report, which should be provided at no cost. Ensure that each organization made the corrections and no new problems have surfaced.

Work With Creditors

Contact all stores and companies to whom you owe money. Apologize for any missed or late payments, and explain that you plan to submit payments on time by the due date from now on. If you are unable to afford the entire payment each month, request a revised payment plan that allows you to make smaller payments on the balance. Many creditors willingly work with customers to get the outstanding balance paid in full.

Limit Credit Charges

Look over monthly credit card statements to see where you can cut costs. Avoid paying for nonessentials with credit, such as entertainment, clothing, and snacks. Instead, pay for those things with cash, which is often a deterrent in helping people avoid spontaneous spending. Charge only essential items, like a doctor’s visit or a broken appliance that you cannot otherwise afford and that you are reasonably sure you can pay off by the end of the month or within a short period of time.

Pay Off Credit Accounts

Start with your smallest credit balance, and work on paying it off as quickly as you can. You may be able to expedite payoff by adding extra to the payment beyond the minimum amount due each month. Use funds from overtime, tax returns, or windfalls to pay down the balance more rapidly. When it has been paid in full, apply that monthly payment that is no longer needed for the first account to a second credit balance, along with the regular payment due each month until it also is paid in full. By eliminating your credit balances, your credit score will clear up fast.

Pay Bills on Time

Review monthly expenses for an idea of when they come due. Make sure you pay each on time so that nothing is late. This is one of the main criteria that credit organizations assess when determining your credit score. If you must be late with the payment, call the creditor to make other arrangements, such as skipping a month or making a double payment the following month.

Live Within Your Means

Establish a monthly budget that allows you to balance income with expenses. This means that you will have a pretty good idea of what your monthly income will be and how to spend no more than what you earn. A savings account is important for short-term emergencies and long-term goals like college or a vacation. Sticking to your budget will make finances easier to manage and help to protect your credit rating.

The credit ranking score for the three main reporting agencies ranges between 300 and 900. Generally, a credit score of 750 is considered strong, while over 800 is excellent. Factors like credit type, recent credit, and debt-to-credit ratio play a role in determining a person’s credit rating. Maintaining a high credit score is important for access to credit when needed.