Monday, December 12, 2011
Austin the Realtor is back with Money Mondays!
Savings and Debt: Part II...by Austin the Realtor.
Welcome back everyone!
Hope you had a great time with family and friends over the Thanksgiving Holiday. For many, Thanksgiving Day means spending time with family. For others, Thanksgiving Day is referred to as Black Friday Eve - a time of shopping and being out at all hours of the night trying to get the best deals possible. Some shop with the cash they saved up all year (Ha!). The majority may be using that plastic friend that is always there in the time of need ……Mr. Credit Card! Now that Black Friday has passed, now it's time to assess the damage. What we want to do is make sure we are making the most of our credit card payments.
This brings us to “Savings and Debt: Part II” – Debt Management”. Last time, we took a record of your income along with your voluntary (coffee, breakfast, gum) and not so voluntary (rent, gas, light) payments to see where our money goes. This allowed us to “trim the fat” in areas that we were able to reduce spending. Today, let’s discuss some tips to manage your credit card debt. This type of debt is considered unsecured debt, which will normally carry a higher interest rate than secured debt (car payment, mortgage). The goal is to pay as little in interest as possible so you would want to start with paying off unsecured debt first.
Tip #1: If you have more than one credit card, pay the minimum on all except the card with the highest interest rate. You want to pay down the card that will cost you the most as fast as possible. Budget how much you can afford and pay that every month. Once that card is paid off, take that monthly payment amount plus the minimum of the next highest credit card and continue your payments...and so on.
Tip#2: Contact your Credit Card company and ask them to reduce your interest rate. You may be surprised how many companies will reduce your rate if you simply ask. When I had credit card debt, I did this every quarter (Operative word here: HAD, it really works). If they say no, you will be paying the current rate anyway so what do you have to lose? Try again next quarter.
Tip#3: If you are carrying a zero balance, ask your credit card company to increase your limit. This may sound scary, but there is a benefit to this. Let’s say you incur an unexpected expense of $5,000. Let’s say you are looking to buy a house (hint: www.austintherealtor.com) and your bank is looking at your debt ratio. $5,000 on a card with a $20,000 limit has a better ratio (25%) than $5,000 on a card with a $10,000 limit (50% ratio)
What other tips have you discovered that has helped you eradicate your credit debt?????