SavvySugar

Ask Savvy: Should I Reopen My Card After Being Deep in Debt?

SavvySugar — Wed, 21 Oct 2009 12:00:36 -0700

Dear Savvy,

I've just paid off one of my credit cards that was in the Debt Management Program through a credit counseling service, which is something I'm proud of! It's nice to have accomplished that! The only issue is, I got a letter from that company offering to reopen the credit card line since I paid everything off. I'm not 100 percent sure if it'd be a wise thing to do or not, since using credit cards got me into the DMP in the first place!

The upside would be that I'd have more available credit line, which could be a good thing for my credit rating. Since I've already learned my lesson the first time around, I know what not to do this time around, which was to charge without making sure I could pay it off pretty much immediately. The credit limit would be a lot lower than what it was originally, so I wouldn't be able to charge a lot, and it is a store credit card so it'd only work only for that store, and not anywhere else.

The cons would be . . . well, my credit card usage is kind of what got me in my debt situation in the first place, and I'm not so sure if I should be opening up cards so soon. The offer is only for 30 days, as well, so after 30 days, I don't know if I'd qualify for a new credit card due to my history. Should I go ahead and accept the offer to reopen the account and "start" over and be more wise, or should I just let it go?

To see my advice, read more.
Savvy says: Congrats on paying off your credit card! It's great that you made the effort and stuck with it - and that you feel like you've learned the important lesson of spending within your means. Even though you've made great strides in managing your money, I don't think it's in your best interest to reopen the card that triggered your financial troubles.

You say that opening the card will boost the amount of available credit and therefore help your credit score, which tells me that you are the owner of at least one other credit card. Instead of trying to manipulate your score, improve your number by working on paying off other debts and keeping all accounts in good standing by paying on time. Focusing on these habits will help you much more in the long run and keep you from reentering an out-of-control credit situation.

If you need more convincing, consider that you'd be setting yourself for a potentially damaging situation if you end up maxing out your new card, even if the limit is lower than what you had before. Store credit cards are, in general, not the most desirable pieces of plastic to have in your wallet. Aside from their typically astronomical interest rate, they can feed a shopper's rationalization that she's actually saving money by shopping because of whatever points or discounts she gets through using the card.

Get this card out of your head and stay on the right track of building a solid credit score. It takes a bit of self-restraint, but you'll be much better off when you need to borrow money for something that doesn't come in a store . . . like a car or house.

Have a question for me? Ask away by posting your questions in my Ask Savvy group.

Goodbye Free Stuff, Hello Better Credit Card Practices

SavvySugar — Fri, 25 Sep 2009 04:30:23 -0700

Times have changed since I was in college, and I'm not just referring to the escalating cost of tuition. Banks hawking everything from free t-shirts and water bottles to free pizza used to set up their tables around the university center attempting to attract unknowing students to sign up for credit cards. As of February 22, 2010, those banks won't be allowed to coerce young adults with free stuff in exchange for completing credit card applications.

The uprooting of these tricky tactics is part of a farther reaching credit card reform act, which also includes a clause disallowing those under age 21 to be approved for a card without a co-signer if the applicant doesn't have proof of income. The goal is to reduce the number of students who accumulate consumer debt because they don't understand the implications of using credit irresponsibly.

Did you graduate with credit card debt that could have been prevented if you were better educated about credit?

Average Household Credit Card Debt: Guess How Much

SavvySugar — Thu, 24 Sep 2009 06:30:14 -0700

We've come a long way in actively managing our personal finances, but there are still plenty of Americans laden with consumer debt. Can you guess how much credit card debt the average household is carrying? Take the quiz!

Take the quiz

Ask Savvy: Should I Transfer My Debt Balance to a 0% Card?

SavvySugar — Wed, 22 Jul 2009 06:30:59 -0700

Dear Savvy,

I have two credit cards with high interest. Should I pay them off with my one card that has zero percent interest to reduce paying over $750 annually in finance charges?

Savvy says: I'm assuming by "paying them off" you mean transfer your existing balances to an introductory rate, zero percent card. There are a number of questions you need to address before making this type of decision. To see my advice, read more.

You need to be clear about when the introductory rate ends and the new interest rate kicks in. Is it higher than the interest rates on your current cards? If so, you could end up paying more interest in the end. Zero interest cards do not exist because credit card companies are generous; they are tools for roping in new customers, and the companies hope to make money off you soon enough.

Also, you should only consider doing this if you can put the old credit cards to bed after you've transferred the balances, so that you don't have a huge amount of existing credit to fall back on. You could just end up deeper in debt. Don't actually close the accounts if they've been open for a long time because that could actually harm your credit score, but ignore them unless you're making small purchases a couple times a year to keep the accounts active (and paying off those balances immediately).

If you decide on this plan of action, use the interest-free period to work on paying down your debt. Put the additional $750 that you'll be saving toward the balance and come up with a plan to pay down your debt that includes making payments beyond the minimum. You don't want to get into the habit of continually opening up cards with low introductory rates and just shifting around your debt - that's not going to make you debt-free.

Has Your City Cut Back on Credit Card Spending?

SavvySugar — Tue, 14 Jul 2009 06:30:21 -0700

Spending less is the quickest way to boost your savings account, and some places in the US have shown a true change in habits since last year. In fact, the U.S. personal income savings rate increased to 6.9 percent from 0 percent the year before. That's good news for personal finances, and Forbes sought out to find the thriftiest cities in the country.

First, it used data from Equifax to determine the total credit card debt in each of the 50 largest metropolitan areas and calculated the average debt per household in each metro area. Then, it divided each metro's average debt per household by May 2009 median household income to determine the average percent of household income owed to credit card companies. To see the 10 cities where spenders have cut back from using credit cards the most, read more.

Chicago, IL: Average credit card debt per household: $7,336.52; percent of income owed to credit card companies: 12.48 percent.
San Francisco, CA: Average credit card debt per household: $9,212.31; percent of income owed to credit card companies: 12.47 percent.
Seattle, WA: Average credit card debt per household: $8,749.44; percent of income owed to credit card companies: 12.26 percent.
Baltimore, MD: Average credit card debt per household: $7609.76; percent of income owed to credit card companies: 12.19 percent.
Philadelphia, PA: Average credit card debt per household: $7,103.60; percent of income owed to credit card companies: 12.16 percent.
Kansas City, MO: Average credit card debt per household: $6,717.87; percent of income owed to credit card companies: 12.07 percent.
Boston, MA: Average credit card debt per household: $5,961.29; percent of income owed to credit card companies: 11.75 percent.
Nashville, TN: Average credit card debt per household: $7,870.53; percent of income owed to credit card companies: 11.73 percent.
San Jose, CA: Average credit card debt per household: $9,424.76; percent of income owed to credit card companies: 11.46 percent.
Washington, D.C.: Average credit card debt per household: $9,546.88; percent of income owed to credit card companies: 11.43 percent.

Money Tip: Check in With Your Credit-to-Debt Ratio

SavvySugar — Sun, 22 Mar 2009 06:00:00 -0700

The biggest factor in your credit score is your payment history; at 35 percent of your score, punctuality has never been so important. While paying on time should be your number one priority in raising your number, you need to simultaneously work toward improving the second biggest factor in your score: outstanding debt. It accounts for 30 percent, so whittling down your debt will have a big impact on boosting your score.

If your balances are high, especially compared to the amount of credit available to you, your score will suffer. Calculate your credit-to-debt ratio by dividing your balances by the credit limits on your cards. Your best bet is to never carry a balance, but experts say if your ratio comes out to more than 35 percent then it's time to get cracking at paying down your balances. Throw more money at them each month to get your ratio down as quickly as possible, and always try to pay more than the minimum.

Source

Do You Have More or Less Debt Than One Year Ago?

SavvySugar — Fri, 16 Jan 2009 07:15:57 -0800

Source

Guess How Much Credit Card Debt: Oprah's Audience

SavvySugar — Fri, 09 Jan 2009 09:30:39 -0800

Oprah's "Best Life Week" is coming to a close today, and yesterday's show was "Money Day" featuring Suze Orman. On their way into the show, audience members were asked how much credit card debt they had and 225 people admitted to having this type of debt.

Oprah's team then totaled the numbers submitted by the in-debt audience. Can you guess the total debt for these 225 people?

Take the quiz

CNBC's Money Honey Doesn't Have a Credit Card

SavvySugar — Thu, 08 Jan 2009 09:30:08 -0800

What's one way to make sure you never go into credit card debt? If you never have one in the first place. Ellen DeGeneres couldn't believe that CNBC's Maria Bartiromo, a.k.a. Money Honey, doesn't own a credit card and the two briefly chatted about the topic when Maria was a guest on Ellen. Maria explained that she uses her debit card and doesn't own a credit card, but she's considering getting an American Express card because it requires you to pay off your balance in full every billing cycle. Ellen does ads for Amex and she got a kick out of the company's mention. Check out the exchange in the video below.

Maxed Out: $78,000 in Debt and No Mortgage

SavvySugar — Tue, 16 Dec 2008 11:30:22 -0800

This episode of Maxed Out is about Christine and Ross, a couple in so much debt that it's extremely difficult for them to keep things afloat. Christine can't even speak without crying because she's so distraught and stressed over their financial situation. They are the only couple among their friends who are still renting, and their dream is to have a home and children.

Christine is taking fertility medication, which her doctors say isn't working because of her high stress levels, but their first priority should really be paying off the $78,000 in debt they have between them. None of that debt comes from student loans or a mortgage; it's all credit cards, credit lines, and a small car loan. Find out how financial guru Allison Griffiths intervenes when you read more.

Allison discovers that every penny of Ross's income from the first seven days of each month goes toward the $1,157 monthly interest payments they're making. At this rate, it will take nearly eight years and $52,270 in interest until their debt is paid off. Allison instructs them to cut expenses to eliminate their $770 monthly shortfall, and by living within their means Christine and Ross will pay off their debt in half the time and with half the interest payments.

The couple doesn't proceed with Allison's instructions as quickly as she'd have liked, and they're hurting themselves by resisting to consolidate their 14 bank accounts. The $337 in bank fees they pay each month really add up - it's twice the amount they've been spending on entertainment. Eventually, Christine and Ross come around and get on the Maxed Out plan, but the one thing they'll never budge on is reducing their cable plan.

Source