Debt Free

For most of us out there, slogging through everyday life, it’s tough. There are so many things to contend with everyday; kids, your money, work, school, transportation, housing…. Many of these disparate elements are hopelessly intertwined with each other to form the fabric of your daily life. Regarding your money, the more you know and the more effectively you use your knowledge, the better you’ll be. You can never know too much about finances and your money. Here are 4 things that can make or break your personal finances.

Oh, one more thing – I noticed one of the (millions of ) mortgage company radio ads changed from claiming you can “eliminate debt” with one of their debt consolidation packages to now saying you can “escape the pressures of debt”. I guess someone in legal finally got the message to them that taking out a new loan doesn’t constitute eliminating debt.

Before you do anything else, get a copy of your credit report. It’s free and each of the major credit reporting agencies will let you have one once a year. You don’t have to join or sign up for anything either. This means you can stagger your requests to each agency and get a free credit report ever 4 months.

Money Mistake #1 – A debt consolidation loan is a popular solution to help Americans manage their debt. Did you know that about 2/3 of Americans that take out a debt consolidation loan to pay off high interest credit or other debt actually end up worse off within a few years. Why, you ask? Well, they foolishly don’t change their financial patterns and behavior. Here’s an interesting fact: A recent study revealed purchases made on a credit card averaged 14% higher than similar purchases made using cash. It's easier to spend more when you don't have to actually have the money up front. Don't make the same money mistake.

Money Mistake #2 – Credit card agreements are there to protect and maximize profit for the lenders and credit card companies. They could give a rip about you, except that they want to keep you as a long term customer. Something about customer acquisition costs vs customer retainage costs. Purely a business decision, I assure you. Far too many people get their sparkling, new credit card and actually use as the credit card companies intended, to buy almost everything. No, no, no. You’ll get your balance too far in the stratosphere. Once the card’s balance is way up there, too many people only make the minimum payment. At that rate, it’ll take 20 years to pay off a 15% credit card with a $15,000 balance!

Here’s the part the credit card companies really love. By the time you get the card paid off, you will have paid almost the same as the original credit card principal in payments. In pre-tax dollars, you’ll have to make almost $50,000 to pay off your original $15,000 debt. Did you enjoy that ultimate set of tools you bought? That doesn’t mean you shouldn’t use credit cards to help out in emergencies. In the majority of cases though, credit cards will hand you a major set back in your quest for financial independence. Some people have mastered the art of ping-ponging the balances between 0% or very low rate cards, but that can be a trick for only the most organized, depending upon how many offers you happen to be juggling.

Money Mistake #3 – If you do get multiple credit cards, the risk of accidentally making a late payment goes way up. It’s essential that you make no late payments, ever! Why? That’s one money mistake that could profound ramifications for your finances. The way many of those credit card agreements are structured, you can be considered late if your payment arrives even a few hours late. To avoid this pay online, where you can see all you bills laid out for you in a nice column. Even better, have all you cards put on autopay for the minimum payment, then pay whatever extra amount your debt elimination plan calls for on each card.

What happens if you do have a late payment? Well, the board members of the lending institution get their profit bonuses for the quarter, that’s what. One late payment can easily cost you thousands of dollars in interest over the life of the card. That rate will stay way up there for an extended time period. Depending upon the particular credit card, that can be either from 6 – 12 months, or forever.  Heaven forbid, if you forget a payment for a month, don’t think, “Oh, well, I’ll just pay more next month.” It’s not that simple. You can’t go back and make it up if you’re more than 30 days late.

Two problems can be caused by your one little late payment; One, a 30-day late will go on your credit report for all to see. Any future credit you obtain will cost you more because of the late payment. Problem two, because many cards and debts have a universal default clause, many of your other cards may raise your interest rate. They can do this even on cards from other lending institutions. Don’t make this money mistake. It’s one of the most costly for the average person.