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Credit Tips to Live By

7 essential tips on how to use credit wisely without risking debt problems.

Credit cards don’t have to be the enemy of financial stability. If you follow the tips in the video you can use credit cards with confidence, enjoying the convenience and added benefits like rewards without worrying that you’re creating a mess once the bills come due.

Smart Spenders always that credit – any type of credit – is a loan. It’s real money that you’re expected to repay.

Smart Spenders start small with one card that has a low credit limit. They use that card responsibly and make sure they can manage the debt before they being to consider applying for more credit.

Smart Spenders study credit card agreements and closely read the fine print on inserts that are enclosed with monthly bills. This is important because card issuers can change terms with 15 days’ notice and these inserts may explain changing rates or fees.

Smart Spenders know that only meeting the minimum required payments is a trap! If you pay off a $1,000 debt at an 18% APR using only minimum payments it will take 8 years – yes, EIGHT YEARS – to repay. And the total interest charged will be nearly equal to the original amount, so it almost doubles the cost.

Smart Spenders know one slip up can create a negative mark on your credit report that can stick around for seven years. And if you make two of these mistakes your interest rate can escalate to the maximum until you make six consecutive payments on time.

Smart Spenders follow their budget diligently and keep track of exactly how much they’re paying towards their credit cards. They keep non-mortgage debt payments at less than 15% of their net monthly income. So if a Smart Spender takes home $4,000 per month they spend no more than $600 on debt payments, not including mortgages and auto payments.

Smart Spenders talk to their creditors and lenders whenever the need arises. Always notify issuers promptly when you move. And if you can’t make a payment you call them before you’re late, because Smart Spenders know creditors want your business for life. So they may be willing to make special arrangements that won’t leave a negative mark on your credit reports.

Smart Spenders take note of the first sign of debt trouble. So if they see they’re doing something like covering budget gaps with credit cards or using one credit card to pay another they take action. They find out how to get control of their finances and explore debt consolidation, low-interest lending options and credit counseling. They stop charging at the first sign of trouble. They put credit cards on lockdown until debt problems are taken care of and stability is achieved.

For more information on how to be a Smart Spender visit

How much debt should I pay off each month?

As the video explains a minimum payment schedule is often a trap that keeps you in debt longer and leads to higher total interest charges. So you want to pay more than the minimum, but how much should you pay?

Ideally, you should be able to pay off all or most of your credit card balances in-full every month. This is especially true for rewards credit cards that tend to have higher APR. If you let the balances carry over so interest gets applied, that 3% cash back is quickly offset by the 21% APR applied to your balance after one billing cycle. With that in mind, if you use reward credit cards for things like gas or groceries, those bills should always be prioritized to get paid off in-full first.

There are times when you may use credit to make a larger purchase or series of purchases that can’t be paid off in a single billing cycle. In this case, the purchase or purchases should be put on your credit card with the lowest APR. And even so, you should make a plan that pays off the balance in the largest chunks you can comfortably afford with your budget.

Use our debt repayment calculator to make a debt elimination plan »

When is it time to seek help?

For the most part you know when your debt is getting too big to handle because you start to stress about it. What you may not know is when it’s time to seek professional help. Most people would prefer to solve debt problems on their own. But if your interest rates and balances are high, then make a plan that actually gets you to zero can be daunting, and in some cases, downright impossible.

In this case, you need professional help, like working with a credit counseling agency to enroll in a debt management program. With this type of assistance, you can get out of debt faster even though your total monthly payments are typically reduced by 30 to 50 percent. That’s because the agency helps you create a consolidated, adjusted payment schedule that works for your budget and negotiates lower interest rates on your behalf.

Of course, it can be hard to get over the negative feelings that often hold people back from reaching out for help. Consolidated Credit has worked with many clients, such as Margaret, who say it was tough to reach out at first but it was worth it in the end.

“Like they say, there are problems but there are also always solutions to those problems. You just have to take the time to listen and take advice from the right people. Swallow your pride- you don’t have to be ashamed. Ask for help when you need it.”

Not sure if you need help? Take a quick debt quiz to find out! »

5 times you should talk to your creditors

When it comes to dealing with creditors, some people seem to take the stance that avoidance is the best policy. However, it’s important to remember that creditors are not debt collectors – they’re a company that’s providing a service to you and they want your business. Things usually only get strained when you avoid them because you’re having trouble. If you’re up front and proactive, they’ll be more likely to work with you because they need to maintain good relationships with their customers.

Besides calling for account updates like a change of name or address, you should also give your creditors a call at the following times:

  1. If you can’t make a payment. Don’t wait until the payment is late to call and make arrangements. The creditor may be willing to accept a reduced payment for that billing cycle or work with you to create an adjusted payment schedule that you can afford. The earlier you call, the more flexible they’re likely to be.
  2. If you have good credit, but the card has high APR. Interest rates on credit cards are not set in stone once you open the account. If you have good or excellent credit, then it’s worth your time to call and see if the creditor will be willing to reduce your interest rate.
  3. If you pay off a big balance in-full in the middle of a billing cycle. If you make a lump-sum extra payment or use something like a debt consolidation loan that uses the funds you receive to pay off the debt in the middle of a billing cycle, interest charges may be applied for that period even though your ending balance for the month was zero. Creditors may be willing to waive these interest charges if you call.
  4. If you have fees applied that you don’t understand. If there’s a new fee applied to your credit card that you don’t understand, don’t just accept it at face value. Call your creditor to ask them about it and to ask if there are ways it can be avoided in the future.

When you need to restore APR after a penalty. As mentioned in the video, if you don’t make a payment for two consecutive billing cycles, the creditor has the right to raise your APR to the maximum level outlined in your credit card agreement. By law, if you make 6 consecutive payments on time after that, then your original rates should be restored. Review your bills carefully and if the rate hasn’t been reset, call your creditor.

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