Monday, July 07, 2008

Finances

I have several friends right now dealing with financial crises. They're not alone. Lots of people are. I thought I would post a few things that might be useful when it comes to finances. I'm not an expert. These are strictly lessons I've learned through reading or from experience:

1) 0 interest transfers to new credit cards come with a huge catch. If you charge anything on that card, you pay interest and NONE OF YOUR PAYMENTS go to pay off the interest bearing charges until the zero interest charges are completely paid off.

2) If you are in trouble with your mortgage, talk to your bank but go in with a plan you can show them of how you believe you will be able to pay in the future if they give you a temporary abeyance.

3) If you can't afford to pay cash, you can't afford it. That doesn't mean you can't charge something, only that you need to know you would be able to pay cash if you had to. Exceptions? A house. College loans (within reason). Maybe a car. Unexpected medical bills.

4) Calculate the true cost of what you buy. Everything you buy with credit costs a lot more than anything for which you pay cash—unless the credit card bill is paid in full each month. So when you look at the price of something, tack on the amount of interest you will pay over its lifetime to decide if you can afford it—or really want to spend that much.

5) Financial institutions are out to make money. They will tack on fees and interest any way they can. If a credit card or loan offer looks too good to be true—there's a catch, often a huge one.

6))You don't have good credit unless your credit score is over 750. Otherwise you're going to be charged higher interest on everything.

7) You can sometimes negotiate interest rates on credit cards. Know what interest rate you pay and what the best interest rate is that's currently being offered.

8) There are lots of scammers out there offering to help “fix” your credit or help you with your home that's going into “foreclosure”. You're much better off, in almost all cases, dealing directly with creditors yourself.

9) Don't cancel credit cards. Get the balance down to zero, cut them up if that will help, but don't actually cancel the account (unless there's a fee for having the card). The reason is that the more credit you have available THAT YOU ARE NOT USING, the higher your credit score. The longer you have had a credit card, the better in terms of your credit score.

10) With credit cards look at the true cost of having them—yearly fee (if any, preferably none), interest rates, rules about when an d how they can raise interest rates, late fees and penalties (if that applies to you), etc.

11) Know that with debit cards, businesses can put “holds” on your account for more than the cost of your purchase! This can cause you to overdraw your account even though technically your purchases are within the amount you have in the bank.

12) Get to know which things are luxuries for you and which are true necessities. Separate emotion from your spending. Be realistic about what you can afford.

None of these things are new. Just wanted to share them in hopes that they might help a few people out there.

4 comments:

lcward said...

April: Thanks for your comments, especially about how credit card companies handle those "zero-interest" balance transfers. I have an industrial-sized shredder where I always consign offers like that, but I'm not sure I understood just how misleading they really are. Your explanation will help keep me from ever being tempted!

Lynda, doing pretty well, all things considered

April said...

Thanks Lynda. It's amazing the number of pitfalls there are with all sorts of financial offers...

Deborah said...

April,
Thanks for your excellent comments. I will be forwarding this link to my sons and their friends...
Cheers,
Deb D

April said...

Thanks, Deb! I worry about some of my friends and many of the younger generations, too, because our culture has encouraged so much spending on credit. And because there really are such deceptive credit practices out there--as well as outright scams.