Credit is a valuable and necessary financial tool. It can help you establish a credit history, make purchases conveniently, and take advantage of the benefits and services offered by credit issuers. But not managing your credit wisely can lead to:
- Increased interest rates (APRs)
- Penalty fees
- A decline in your credit score
- Denials of future credit
For those of us who still have the option of using a credit card:
- Scrutinize all credit card offers and terms, especially the “fine print.”
- Don’t be fooled by teaser rates and cash advances. Under current policy, teaser rates can last a much shorter amount of time than you might anticipate.
- Credit card cash advances have high interest rates and even a single cash advance can raise the interest paid decades later if an account is never paid in full.
- Credit card companies will use your monthly payment to pay off the amount due at lower interest rates before applying it to the amount that has a higher interest rate, like a cash advance.
For those of us working on building our credit score and lowering debt, here is challenge #2.:
- List all your debts (except the house) in order of smallest balance to largest.
- Then pay the minimum payment to stay current on all the debts except the smallest.
- Every dollar you can find from anywhere in your budget should be paid toward the smallest debt until it is paid in full.
- Once the smallest debt is paid, the payment from that debt plus the monthly payment of your next smallest debt should be paid each month to pay off the next smallest debt.
- When debt number two is paid off; you attack debt three, and so on.
