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?????

Go!


- Austin

33 comments:

Annamaria said...

FIRST BITCHES!!!!! :)

Stef said...

Well, since he's your boo, I'll let you be first :-)

Good tips!

I always get into trouble around the holidays with my credit card :(

Annamaria said...

lol.. that's funny cuz I was going to say FIRST B*TCHES and then say that's my boo so it's only right... LOL
I'm cancelling Christmas this year! LOL

Serena W. said...

Yeah for Money Monday's! Great blog! I have a question Austin. I currently don't have any credit cards. Should I get one to start off so when it is time to buy I have something. Also what kind of card would you suggest? I see commercials for so many!

Anonymous said...

Here's a question:

If you come into a lump sum of money, say $5k, and your highest interest rate credit card debt on one card is $5k - do you pay off that card, or do you take that $5k and pay off three other cards instead?

Aisha G of HartlynKids said...

Great blog. I no longer use credit cards other than Amex but I have in the past tried some of these methods and indeed have one card with an APR of 3.99% simply because ... I asked. Go figure!

Courtney said...

I feel like with the economy and credit card situation the way it is now, asking for a lower rate is pointless. I have really good credit (over 700) and I've been asking for over a hear now and they keep telling me no :(

Powerz the Realtor said...

Hello All!

@Serena - no credit is just as bad as bad credit. You want to create a credit history so there is a record of you making on time payments to build your credibility. In terms of cards, most important is, of course, interest rate. It is very important you read the fine print on the introductory offers. Compare after introductory rates and benefits (miles, thank you rewards, hotel points). Pick the card that best fits your lifestyle.

@anonymous - good question, assess the rates on all your cards. In this case in may be better to pay off the other 3, take all those minimum payments plus your payment on the highest card and continue payments there. Another benefit to this is that you can reduce the amount of revolving credit. Too much of this is bad thing also. You may consider closing some of these accounts. Keep in mind cards with longer payment history should be kept since these show a longer history of payments.

Note: Always close your own accounts if you reach zero and no longer intend on using the card. Do not leave it up to the company to close. Your credit report will reflect "per customer request". A company can close an account for many reasons, usually for delinquency but the reason does not reflect on your report. You do not want this information misinterpreted when applying for a loan.

As a side note, if you have many credit cards, you may want to consider a balance transfer. Many companies offer little to no interest for a specified time frame in order to get the business. Just make sure you are not transferring to a higher interest rate after the promo period.

Powerz the Realtor said...

@Courtney - threaten to leave the company. If they still say no. Do some research, find a better rate and take advantage of a balance transfer offer.

Serena W. said...

I should have noted that I did have credit cards at one points so I have a history. I also have a car note and once owned a home. I'm hoping in the next 2-3 years to own a home or as I was talking to you about before a business :) I''ll chat with my credit union about a credit card and get 1 and build it up in case of those unwanted emergencies. Thanks for the info!

Courtney who is your credit card company? I once had Discover and they were buffoons!

College Kid said...

I'm a senior in college and avoided getting credits cards until now. I recently applied for one and got turned down, they said my credit score was 610. Can you help me figure out a way to get approved for a credit card? Since I'll be graduating soon, I want to start establishing credit now. Thanks!

Brooke said...

I'm considering doing a balance transfer myself - what are some other drawbacks other than possibly having a higher interest rate than your old one after the introductory period is over?

Transfer fees?

Powerz the Realtor said...

@Serena - you do want to have a steady credit history and keep the payments up to date.


@College Kid - You did good in not falling into the credit card trap as a college student as many have but you may have been a little too conservative. I would suggest looking into obtaining a secured credit card. Works like a debit card where it’s linked to an account checking/savings account but the company reports to one of the 3 credit rating companies. Check out Chase, Wells Fargo or any of the big banks.

Powerz the Realtor said...

@Brooke - Read the fine print 3 times! Not only can the rate be higher but 1 late payment can skyrocket that introductory rate. Also, a late payment on one credit card can affect your intro rate on another card.

Powerz the Realtor said...

@Brooke - sorry Brooke, I read too fast. Once you sign up for the Intro offer, reaped the benefits of the lower rate and now the intro rate is over, this is now your card. There should not be any other surprises. Any associated fees would have to be disclosed in the fine print upfront.

Brooke said...

I haven't done it yet, but was considering it. Sounds too good to be true, which is why I thought I'd ask about the risks involved. I pay all of my bills on time, so it still may be a good idea - but the ONE late payment thing scares me a lil bit :-)

Brother from the 5th Floor said...

Let me Borrow some money!!

Geeque4u said...

Austin dropping that science!!!

Courtney said...

These are some good tips!

Would you recommend people taking a lump sum of money and paying off credit cards, or keep making payments and save that money for a rainy day?

I thought I heard Suze Orman say saving in this economy is more important that paying off credit cards. What do you think?

Geeque4u said...

@Courtney - Its very important to always have savings...

Find the card with the lowest interest rate and transfer your balances. Its better to pay one card then multiple cards.

Don't use all your savings, just make payment to that one card. If possible pay yourself the same amount that you are paying towards the one card.

Powerz the Realtor said...

@Courtney - Suze Orman has a good point. This economy has been unpredictable and the job market has been very sketchy but you want to balance this information with the cost of debt. Do not spend your life savings on debt but it may be prudent to use some savings to pay off debt.

Determine a good safety net of savings to sustain you in case the unfortunate happens and make sure that goes untouched.

The 0.0005% savings interest you get may not be the better choice if you are paying a 15% credit card.

By paying off that 15% credit card, you just gave yourself a 15% raise in income.

Good Looking GeeQue, putting that Baruch Degree to Work! lol

Geeque4u said...

@Austin, I love Baruch, but good financial sense is learned at home, not in school....
Thanks to mom for the financial lessons...

Stef said...

Not everyone has that home training though when it comes to economics. My parents never taught me this stuff. Unfortunately I had to learn through making MANY mistakes when it comes to money.

It's not all common sense, and I have alot to learn when it comes to investing, buying a house, retirement, stocks, etc. I'm totally ignorant when it comes to that stuff, so hopefully through this Money Mondays blog, I can learn more and more. This is a great idea. Thanks!

Geeque4u said...

@Stef, you are right. Sometimes you do not get the proper financial lessons at home and have to learn the hard way...
A good book you may consider reading is Rich Dad, Poor Dad...

Geeque4u said...

@Stef, you are right. Sometimes you do not get the proper financial lessons at home and have to learn the hard way...
A good book you may consider reading is Rich Dad, Poor Dad...

Powerz the Realtor said...

Rich Dad, Poor Dad is one of my favorites! Definitely a good pick. Gives you a different view on money and assets.

If anyone has any particular topics they would like to discuss, please share.

For additional follow-up, feel free to email austin@austintherealtor.com and I'll assist wherever I can.

Jay said...

This is a great idea - great job Austin and Brooke. Keep it coming.

I'm interested in investing, so looking forward to that.

Annamaria said...

@Jay... that's funny cuz Austin & I were having an investing conversation last night.

If we get 2 or 3 more people he can hold a seminar! LOL

Jay said...

A seminar is a great idea - we should do it as a blog get-together.

The Cable Guy said...

A 15% raise, never thought of it that way!

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Jillian Johnson said...

Thanks a lot for sharing this post – you offer a lot of useful tips and advice that people can and should utilize! Unfortunately debt is a growing issue for many. While it may be hard to climb out of debt it is possible. Debt is especially hard for families. Fortunately there are fast solutions. Some may sell their structured settlement for cash.

Jenniffer said...

Hi..you have written very well about the debt settlement..It is no doubt a very good way of keeping the debt advice.

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