Credit Cards / Mortgage
Question: I’m the kind of person that likes to spend a lot of money. Each month I typically spend more than I make. This means that I’m never able to save for retirement and I’m always running up balances on my credit cards. What can I do to change my ways?
Answer: Put yourself on a cash only system. Stop using credit altogether, even pay your living expenses through your checking account. The sooner you learn to not rely on credit the better off you’ll be. Every financial institution now offers Visa cards that link directly to your checking account, allowing you to sidestep the need for a credit card. Monitor your checking account every night, and keep a spreadsheet of your debits and credits. Make sure that balancing everything out becomes a habit, because it is something you will have to do for the rest of your life.
Question: I’ve signed on with a debt reduction firm, hoping they can help me improve my credit by packaging all my debts into one monthly payment. Is there anything I should be worried about?
Answer: Yes. Debt reduction firms charge some very high fees in some cases, and all they are really doing is negotiating on your behalf. They are not waving a magic wand. Plus, using them puts a very negative statistic on your credit report. In fact the only thing worse is bankruptcy. My advice to you is to try and avoid this kind of move. Do as much negotiating as you can on your own, and just be very diligent in paying off your bills each month. There’s no reason to pay lots of fees to have a middleman do some work for you.
Question: I have been using the same credit card for several years, but suddenly my interest rate went up for no reason. I haven’t been late on a payment or missed a payment. What gives?
Answer: Credit card companies have begun changing credit rates due to external factors. If you have had any negative credit action in other parts of your financial life, or if you have suddenly had increased activity, or maybe you’ve applied for additional cards, these can all have an effect on the rate that a credit card company will charge you. Sometimes they don’t even tell you about it. You might receive a notification, but there’s no guarantee of that. This is just another reason why consumers must stay ever-vigilant with their credit health. Protect it, monitor it, and never share it with anyone, even family. There is a long list of people that have damaged their credit history by sharing their credit tools with family members.
Question: I have never had a credit card in my entire life, and have never bought a car or a home. If I don’t have any credit score, how can I get started with my mature financial life?
Answer: We all have to start somewhere, and for most of us that is with a secured credit card. For a very small down payment, usually just a few hundred dollars, a bank can issue you a card that will allow you to get your feet wet with lending. All they are really looking for is proof that you will consistently pay back your loans. Never go past your limit and make sure that you don’t lend your card to anyone. Monitor it daily and stay abreast of any changing requirements. Within a couple years you should be able to get a normal credit card, and soon after that you’ll discover that you can qualify for an apartment or a car, and later on a house. But keep in mind that none of these goals is possible without a steady income. No one will ever issue you credit of any kind if you can’t prove that you can repay them.
Question: I think I know how much I can afford to pay for a house, but I’m not sure. How can I gauge that?
Answer: Take the amount that you think you can afford, and cut that in half. Keep in mind that depending on your credit score, you may or may not pay a few hundred dollars more or a few hundred dollars less a month than you might think. The incredible amount of expenses that come with home ownership, combined with property taxes and mortgage insurance, can overwhelm almost any budget. Therefore you must be incredibly careful while shopping. Keep your outlook conservative and make sure that your real estate agent knows what your intentions are. The agent is there for the commission, and might try to bump you into a house that is too expensive. Watch out for your own needs. Make sure that you measure your monthly budget before you look at the real estate ads.
Question: How can I improve my credit score?
Answer: Pay your bills on time and only carry a few thousand dollars worth of credit opportunity in revolving lines of credit. If you owe past debts, hunt them down and settle them. Inspect your credit report and request that any incorrect or old items be removed. Never endanger your score by allowing a friend or family member to use your personal information.
Question: What is the best way to use credit cards?
Answer: There isn't a good way. They are typically scams that lead to a black hole for most consumers. If you want to pay with plastic, use a checkcard that is tied to your checking account. You'll get the same benefits without any of the drawbacks.
Question: How often should I review my credit report?
Answer: I suggest every six months. You can get it easily at www.freecreditreport.com. I also suggest using fraud protection tools like www.lifelock.com to prevent against identity theft and credit abuse.
Question: What kind of mortgage should I use?
Answer: Only purchase a mortgage with a fixed payment. Using a variable rate mortgage exposes you to future rate hikes that could require foreclosure.
