How to Take Charge of Your Credit Card Debt

Stop Charging – If you have credit card debt that you can’t pay in full every month, do not charge anything on the credit card unless you have the money to pay it. This is your first step towards managing your credit card debt.

Avoid Making Late Payments - Always pay on time and never make a late payment. Late payments can affect your credit score. Pay at least the minimum if you are unable to pay the full for any given month. I have seen people not paying a 70-cents bill thinking it would not make sense to pay this small amount. They ended up paying a penalty for late payment and affecting their credit score. A small amount can drag you down a lot if it’s not taken care of in a timely manner.

Call and Ask – Call and ask your credit card companies for a lower interest rate and waive any penalty fees you may have occurred. Optimize balance transfer offers to lower your interest on credit card.

Pay Extra Amount – Pay whatever extra amount, whether it’s a small or a big amount, you can possibly arrange to pay towards your credit card balances every month. If you look at paying addition amounts in terms of longer time frame, it will accelerate your debt-free endeavour a lot faster.

Be Aware of Credit Repair – The Consumer Reporting Act has rules regarding how long accurate information can appear in a report and no credit/fix companies have the authority to remove, erase, or change this in a consumers’ file. Beware of these companies claiming to fix your file.

Take Charge of Your Finances - Learn about managing money, investing, and building wealth for your financial future. There are many independent personal finance websites, Canadian government websites, and U. S. government websites to help you build your financial roadmap.

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What Lowers Your Credit Score?

Credit scores are very important if you are applying for a mortgage, a loan, credit card, and so on. A lower credit score will make your interest and payments higher, thus costing you more money. There are certain things you can do to avoid factors that lower your credit score. Let’s discuss them.

Making Late Payments or Missing Payments – This factor affects your credit score the most because 35 percent of your score is based on payment history. Paying on time can make the difference between an average and an excellent credit score.

Borrowing Too Much - This is the second biggest factor that lowers your credit score. Your outstanding debt counts for 30 percent of your credit score. If you have a high ratio of credit used in relation to your available limits (credit utilization ratio), it will lower your credit score. Don’t borrow up to your limits. Keep it 25 percent or less of your available limits.

Closing Too Old Credit Card Accounts – The length of your credit history counts for 15 percent of your credit score. To keep your credit score higher, do not close accounts that are too old. It is a good idea to keep a variety of credit card accounts active, especially those which are old.

Applying Frequently – If you apply too often for credit cards or other loan accounts, it will lower your credit score. Applying too many times for credit implies that you are desperate for credit and it affects your credit score. This accounts for 10 percent of your credit score.
 
Not Keeping A Variety of Credit Accounts – Your credit score will be higher if you have a variety of credit accounts. Having only one type of credit account will lower your score, as keeping a variety of credit accounts for 10 percent of your credit score. Keep multiple types of credit accounts active, even if you don’t use them. For example, an investment loan account, mortgage, store credit card account, regular credit card account, and so on. Sometimes a credit issuer will close your accounts if you don’t use it for a while. To keep them active, keep a very small balance and pay the minimum every month. Or, you can charge a very small amount once in a while and pay off the balance.

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How Many Credit Cards You Should Have

When I was a student, getting my first credit card with a $500 credit limit gave me the feeling of conquering a country – it was a feeling nothing like I had experienced before. And then I got addicted to applying and getting more credit cards. I wanted to have them back then just because they looked cool and I wanted to have a collection of all sorts of cards. However, things are different now. There is no need to acquire cards one after another just to make your wallet fat. Today, I am going to talk about how many credit cards you should have and if there is any perfect number you need to stick with.

Let’s look at how having more than one credit card affects you in terms of your FICO® score. Your debit-to-credit ratio is your combined credit card balance divided by your combined credit limit. Credit-to-debit ration represents 30 percent of your credit score. If you carry a balance on your credit card, the more credit cards you will have, the better (lower) your debit-to-credit ratio percentage will be. For example, if you have one credit card with a credit limit of $1000 and you spend the full $1000, your debit-to-credit ratio will be 100 percent. However, if you have 4 credit cards with $1000 credit limit each, spending the same $1000 will make your debit-to-credit ratio only 25 percent. So having more credit cards does help in your FICO® score; however, you should not worry too much about this 30 percent of your score as there is 70 percent remaining to improve your score. And besides, if you have difficulty controlling your spending, more credit cards translate into more spending.

Now, how many credit cards do I think you should have? There is no ideal answer because it all depends on your personal situation. However, from my point of view you should have at least three (VISA, MasterCard, and American Express) major brands. One of the main benefits of having all is that not every place/merchant accepts all cards and having each of them will come in handy, especially when you travel. Another benefit of having more than one card is you can use them for different purposes.

As I mentioned earlier, if you have a spending problem, strictly stick to one credit card and only use it for emergencies. And then when you think you are responsible enough to handle more credit cards, you can look into getting more based on your needs.

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What To Look For When Choosing Credit Cards

Annual Percentage Rate or APR

Annual Percentage Rate or APR is the interest you pay to your credit card company for carrying a balance. In other words, this is your cost of not paying balances in full every month and using the credit card company’s money. If you pay off your balance in full, you don’t need to worry about Annual Percentage Rate or APR that much. This will give you more flexibility to pick credit cards with other features. If you carry a balance, pick a credit card with the lowest APR possible. Make sure the APR is not a promotional one and available only for a limited time. Picking the lowest APR credit card will save you tons of money for the lifetime of the loan.

Annual Fee

In general, try to avoid any annual fee. However, if you carry a balance some credit cards with annual fees offer lower interest rate or APR than those cards with no annual fee. Do the math and if you find out that an annual fee credit card will save you more money in terms of carrying a balance, pick an annual fee card with the least interest possible.

Balance Transfer

Some credit cards will give you a balance transfer option with a low introductory APR. You need to make sure of a few things before you jump into this feature to save some money. I have discussed this in another article and I recommend you read it here: How to Use Your Credit Card Balance Transfer to Your Advantage

Grace Period

Grace period is the time you have to pay off your balance after making a purchase without paying any interest. If your credit card does not have a grace period, you will start paying interest as soon as you make a purchase. In many countries, there are credit cards with no grace period. In Canada starting in 2010, due to the federal government’s new credit card regulations, federally-regulated financial institutions are now required to provide at least a minimum 21-day grace period on new purchases, and this is applicable on new purchases when you carry a balance as well.

Rewards Credit Cards

These days, I see no point in using a credit card without any rewards. A rewards credit card offers you points or rewards just for using it. Rewards can be in the form of cash back, Air miles, Aeroplan miles, merchandise, and so on. I prefer cash back, as it does not restrict you to using your points on anything specific. If you use reward points or miles, make sure they don’t expire and are easy to use without restrictions and hassle.

A Few Other Things to Look For:

I always make sure your credit card provides the following:

- Free Purchase Warranty: This feature protects your purchases against theft, loss, damages, etc. for 90 days or so depending on the credit card company.

- Free Extended Warranty: This feature doubles the manufacturer’s warranty for an additional year.

- Free Price Protection: This feature refunds the difference if you see the same item you bought at a lower price anywhere else.

- Free Collision/Loss Damage Waiver for Rental Cars: This feature insures you for rental cars if it’s lost or damaged. You save money on the rental company’s insurance that otherwise you would have to pay.

-  Free Travel Accident and Baggage Delay Coverage: This feature covers you from travel accident injuries and baggage losses or delays.

It is important to note that you may not be able to get all the free features I mentioned above in one card. What I do is carry two or three credit cards giving these free additional features and whenever I need a feature covered, I use the credit card with that feature. A Dawn Journal has a credit card section with lots of credit card articles. Make sure you read them and don’t for get to recommend A Dawn Journal to your friends and family.

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Lower Credit Card Rates

If you are dealing with debt and you want to try and get your head above water, then one of the best things you can do is to look at lowering your interest rates. Since credit card debt is one of the most common forms of debt, you should look at lowering your interest rate with this. It is quite easy to do, and all you have to do is follow the instructions in this article to lower your credit card interest rate.

Many people do not realize that you can lower your credit card interest rate through something as easy as a phone call. Remember, if you default on your credit card, it costs the credit card company money. The credit card company does not want that, so they will work with you to help you pay off your credit card. Therefore, all you need to do is call the credit card company and call them, asking that they convert your credit card to one with a lower interest rate. One good thing to do is to show them that you have always paid your credit card, and been a credit card customer for a long period of time. This will help them lower the credit card interest rate in your favour.

If they do not, then you can search for a credit card company that provides a better interest rate on their cards. Look for cards through local banks and contact them to get a credit card. Once you have contacted them, you will get a credit card application. Then, fill it out, send it off and when you get your new credit card, you just need to transfer the balance of your current credit card to the new credit card.

It is important to point out that when you do get a credit card and do a transfer, you will be subjected to a transfer fee, but usually it is just a percentage of what you are sending over to the new credit card.

If you think that credit card interest rates are not that big of a deal, then look at it this way. If you have a credit card with $10,000 on it, and your interest rate is 19 per cent, then you will end up paying $1,900 in interest per year. However, if you are able to lower your interest rate down to nine percent, you save $1,000 per year in interest. That little bit of a decline will save you a lot of money and that will help you get out of debt much sooner. Sometimes it is as simple as just asking for a new interest rate, but if that doesn’t work, then you have to do a bit more work and yes, get a new credit card. Although when you get your new credit card and transfer the balance, you can then cancel the old credit card, thereby eliminating that bad interest rate forever.

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Credit Card Balance Transfer

Credit card balance transfer is a tool used by card companies to entice you to start using their cards in hopes that you will continue using their cards even after the balance transfer promotion is over – regardless of whether you pay off those balances you transferred or not. If you know a few simple techniques, you will be able to use credit card balance transfer to your advantage. Let’s go over a few basics on credit card balance transfer you need to know.

In Canada, you will usually get notifications of balance transfer offers in the mail. It is also a good idea to keep an eye on credit card company websites. Also, you can call their customer support line occasionally to check if any balance transfer promotion is going on.

Once you have a balance transfer promotion offer, read the terms and conditions carefully. Here are some tips to help you to get maximum benefit from a balance transfer:

How long the balance transfer will last – Pay attention to the start and end date of the balance transfer offer. Do not start before this date, even a single day ahead can make you pay very high interest. Likewise, do not stretch beyond the last date. Use Google Calendar, a reminder on your cell phone, or any other reminder to remind you at least 3 business days ahead of the actual end date so you will have enough time to pay before the deadline.

Avoid balance transfer fees – In Canada, usually these types of charges are not seen. However, you still need to make sure that it does not exist.

Write Cheques – If you get the offer in the mail, it usually includes customized cheques only for balance transfer purposes. You can use these cheques to pay off other high-balance cards, or you can deposit cash to your own account (using these cheques) and then pay off other credit cards from your bank account. Using these specialized cheques as cash should be written in the terms and conditions. Make sure that you will not be charged high interest for paying other credit cards by taking cash. Call customer service if you need to be sure.

Transfer by calling the customer service line – You can also transfer by calling the customer service line of the card that is offering the balance transfer. Sometimes, you will only be able to transfer to other credit cards; sometimes you will have the option to take cash in your bank account (linked to your credit card) and then you will be able to pay to other credit cards from your own bank account. Ask customer service which options are available and pick the one that is most convenient for you.

Do not pass your deadline – As I mentioned before, under no circumstances should you delay paying off the balances you used for those promotional months. Even a single day delay can make you pay additional fees and high-interest (instead of low interest) penalty and the whole purpose of transferring your balance will be forfeited. So avoid this at any cost.

More than one offer – Sometimes, you will get a balance transfer offer from more than one company. Use your judgment to pick the best offer. Usually, the lowest rate with the longer time-period offers the best value. However, a little higher rate with a longer term than a lower rate with a shorter term may be a better one to pick.

A lot of us decide not to utilize credit card balance transfer because of the hassle and steps involved with it. However, these few steps and a little hassle can save you some money. And it’s never wrong to save a few bucks here and there – it all adds up.

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Credit Cards and Kids

We are living in the age of the Internet and high-tech electronic payment systems – an age in which you don’t need to carry physical money to pay for expenses. Denying the use of credit cards for kids would be like denying them living in the 21^st century. These days, credit cards have become a common daily necessity like cell phones and drivers’ licenses. Credit card companies know that teenagers are a good segment of their target market and they are campaigning fiercely to grab their market share. Leaving kids unaware of credit cards would make them fall into the credit card debt trap and will make their whole life miserable in later years. Teaching kids how to handle credit cards and stay debt-free is an important part of being a parent and these lessons should start while they are still at home and at an early age. Today, I will look at the many different aspects of credit cards and kids.

Do Kids Need Credit Cards?

Whether parents like it or not, kids will be exposed to credit card offers these days more than ever. Mail-in offers, credit card companies trying to reach out to kids through various marketing and promotional techniques, and the plastic culture society (using plastic is considered cool) we are living in today – will make it impossible to deny let our kids the use of credit cards. If parents don’t allow them to use it, they will get their hands on it without parents’ knowledge; and credit card companies wait to seize these opportunities so they can prey on kids when kids are ready to try plastic without their parents’ knowledge.

That’s why parents should take the early initiative to break financial illiteracy and start giving kids financial lessons while they are still at home. Early education prevents financial disaster and costly mistakes at a later age. If kids know all the ins and outs of credit cards and start using them responsibly under guidance, they will be able to handle credit cards responsibly and in the long run will be able to avoid credit card debt and will score good credit ratings.

Benefits of Giving Kids Credit Cards

• Building Credit: Although a credit card is not the most important factor in building good credit, it can definitely be a good tool to help establish good credit. By using credit cards responsibly and paying bills on time, kids will be able to start building a solid financial backbone.
• Spending Plans: The word “Budget” may be a difficult one for kids to grasp. Create Spending Plans for them and teach the difference between Wants and Needs. Impulse buying can lead them into financial turmoil. Teach them how to spend money wisely on things they need and monitor their credit card bills carefully to make sure they are on track. Teach them the pitfalls of high balances and late payments and guide them to avoid these always.
• Financial Responsibility: Teach kids about financial services and products along with credit cards as personal finance lessons are not given at educational institutions. Early personal finance education will instill values and responsibilities in kids and it is likely that they will analyze various financial steps they take and will avoid debt, paying interest, and actions to ruin their financial future.

What You Need To Do Before Giving Kids Credit Cards

Let’s look at some scenarios you need to consider before giving them a credit card.

• Start Talking: Start talking to your kids about the pros and cons and other aspects of credit cards. Tell them the good things about credit cards such as convenience, credit score, better job prospects with a better credit score, lower insurance rates and so on. Tell them the bad things such as interest, late payments, misuse of the card, how it can ruin their credit rating and so on. Tell them about minimum payments, interest charges, why it is wise to pay the balance in full, the effects of late payments, the effects of spending beyond limits and so on.
• Does He/She Have a Bank Account? Make sure he/she knows how to deal with a bank account and ATM cards, and teach them banking basics before handing them a credit card.
• Is Your Kid Ready? You need to make this judgment call to determine if your kid is ready to handle credit cards. Is he/she responsible and able to handle money and credit cards? Does he/she know when to buy and when not to buy? What to buy and what not to buy? Does he/she have a job to pay credit card bills? If not, how it will be paid? Will he/she be paying off the balance in full every month? Does he/she realize that interest will be charged if the balance is not paid in full? If you think he/she is not ready yet, continue giving them lessons until he/she is ready.
• Lay Out a Roadmap: Tell them exactly what things are allowed with their credit cards and what aren’t. This will avoid confusion later on. Tell them what may happen if they fail to follow these guidelines.

What Kind of Credit Cards Should You Give Kids?

There are different opinions on this matter. Some financial experts suggest that you should start with a debit card first and then switch to a credit card. Some experts argue that a prepaid credit card is the best vehicle to start teaching kids about credit cards. Some experts think parents should add kids to their own card as an authorized user so they can monitor how they are doing. However, my own point of view is little different and I think the best type of credit to start with for kids is a credit card with a lower limit. I will tell you why I think this way and what the problems are with the other views I mentioned above.

First of all, a debit card is a debit card. It comes nowhere near close to giving your kids the experience and lessons you expect to give by using a credit card. Before having their first credit card, they should already have a bank account, an ATM card or debit card and this should be enough to give them the experience of how a debit card works. So a debit card is not an alternative to a credit card and kids should have a bank account and a debit card whether they have a credit card or not.

Secondly, prepaid credit cards may sound like credit cards but they aren’t giving kids the real-life experience of a real credit card. These prepaid credit cards have no monthly bills, interest rates, or late fees, as they are paid before and you can use only up to the amount you loaded onto your account beforehand. So it is missing the real, relevant experience of a credit card.

Thirdly, parents should never add kids to their own credit card account. Parents’ credit card accounts will always have much higher limits than you want your kids to access and it will not give them the sense that they need to be financially responsible, as they will know that this is not their own credit card and they don’t need to act responsibly.

A credit card with a lower limit, $200 to $300 to start with, is the best credit card teaching vehicle for kids to start learning the uses of credit cards and start the journey towards becoming financially responsible.

What You Need To Do After Giving Kids Credit Cards

Monitor the transactions on the credit card account regularly. Make sure they are not buying above the limit or buying the things you asked to avoid. Make sure they are paying bills on time. Reinforce the roadmap you laid out before for using the credit card and make sure they are following it. Discuss credit card mistakes you have made or someone else has made in the past and tell them to use them wisely to stay out of credit card debt. Show them good resources on the Internet to learn more about personal finances and how staying financially healthy can pay off throughout the course of their lives. With all the good intentions, if they falter and are unable to handle credit cards and make small mistakes, help them to bailout – but give them the message that this is not going to be a repetitive act and they will have to pay off the bills by working off their own money.

At What Age Kids Should Get Credit Cards?

It all depends. If your kid is ready to handle it, a credit card can be given to 12 – 15-year old kids. However, don’t continue credit card ties with your kids after 20 + years of age. At this point, this should be the end of their college years and they should be responsible enough to handle their own credit. Let them know at least a year ahead that this will be their last year to have credit cards under your guidance and monitoring.

Last Word

Kids do what they see. Teaching alone will not be sufficient to teach kids about credit cards. Kids will watch their parents and copy their financial behavioural patterns. It is important for parents to be financial role models and set up good examples for kids to follow towards achieving financial success. Bottom line, early credit card education depends on how parents proceed and handle their kids’ credit card journey, including misuses of credit cards. Kids can become more responsible or less responsible depending on their parents’ actions.

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A secured Credit Card is a type of credit card for which you are required to deposit (meaning you are securing this money) cash money with the credit card issuer. This cash deposit becomes collateral and acts as your credit line or credit limit. If you have no credit history, want to rebuild credit history, or new to the country, a secured credit card can help you build a positive credit history.

Not all financial institutions offer secure credit cards. There may be many terms and conditions attached to secure credit. Do your research and make an informed, educated decision before obtaining any secure credit card. Here are some points to keep in mind:

• Look out for higher interest rates and annual fees. Research and shop for the best deal you can get. Use these keyword phrases to research for deals: “secure credit card Canada”
• Your deposit should earn interest the same way as a savings account or a GIC (Guaranteed Income Certificate).
• Beware of secure credit card scams. Do not accept any offer from non- recognized brand names. Beware of any secure credit offer from a foreign country.
• You can also try to apply for a retail store or gasoline company credit card.
• Ask at your local bank if they can arrange a credit card for you. Often your local bank can offer you a credit card as part of a package deal.

One you have obtained a secured credit card, pay off your balance each month in full and that should start building a solid credit history for you. Once you are able to obtain a regular credit card, cancel your secure credit card as there is no point in keeping it anymore. Here are some links that will prove helpful in researching your secure credit card:

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I am not just saying this because I know it. I am saying this because I actually do it. I have an Aeroplan Credit Card which comes with an annual fee and so far I have managed to pay no fee year after year. How I do that? Follow these tips to start enjoying an annual fee credit card without paying any fess:

You have to have lots of transactions on your card. Your credit card company will not waive an annual fee on a card which has no or a few transactions. The more transactions you have, the better it is. Instead of using many cards, use only one. A few hundred dollars annual expenses may not be enough but a few thousand dollars will be enough for your card company to waive your annual fee.

Keep an eye on your monthly statements. Once you see an annual fee charge on your statement, call your credit card company and ask that you would like this annual fee charge to be reversed or you won’t be able to keep your account.

Do not expect the customer service associate to say yes right away. They are trained to hook people into a fee paying card. Once you tell them that you don’t want to pay any annual fee and would like to cancel your account, they will give you many reasons to keep your existing card or switch into another annual fee bearing card. Let me give you some examples to give you an idea of what you can expect to hear from your customer service associate -

If you cancel your account, you will loose all your credit records involving this credit card.

I can switch you to a different credit card with a lower fee.

Do not be intimidated by what you hear. Be firm and stick to your point, you will get what you want. One point worth mentioning here is that this article applies only to those who pay credit card balance in full every month. If you carry a balance and not able to pay your balance in full, there is no point calling your card company as you have no cards in your hand to play.